Dimakopoulou, Vasiliki, Economides, George, Philippopoulos, Apostolis and Vassilatos, Vanghelis (2024) Can central banks do the unpleasant job that governments should do? European Economic Review, 165. ISSN 0014-2921
Full text not available from this repository.Abstract
We investigate what happens when the fiscal authorities do not react to rising public debt so that the unpleasant task of fiscal sustainability falls upon the Central Bank (CB). In particular, we explore whether the CB’s bond purchases in the secondary market can restore stability and determinacy in an otherwise unstable economy. This is investigated in a dynamic general equilibrium model calibrated to the Euro Area (EA) and where monetary policy is conducted subject to the rules of the Eurosystem (ES). We show that given the recent situation in the ES, and to the extent that a relatively big shock hits the economy, there is no room left for further quasi-fiscal actions by the ECB; there will be room only if the ES’ rules are violated. We then search for policy mixes that can respect the ES’s rules and show that fiscal and quantitative monetary policies can reinforce each other; this confirms the importance of policy complementarities.
| Item Type: | Article |
|---|---|
| Official URL: | https://www.sciencedirect.com/journal/european-eco... |
| Additional Information: | © 2024 Elsevier B.V. |
| Divisions: | Hellenic Observatory |
| Subjects: | H Social Sciences > HJ Public Finance |
| JEL classification: | E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E60 - General O - Economic Development, Technological Change, and Growth > O5 - Economywide Country Studies > O50 - General |
| Date Deposited: | 13 May 2024 14:09 |
| Last Modified: | 13 Aug 2024 21:09 |
| URI: | http://eprints.lse.ac.uk/id/eprint/123038 |
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