Comment on: “when does a central bank’s balance sheet require fiscal support?” by Marco Del Negro and Christopher A. Sims

Reis, Ricardo ORCID: 0000-0003-4844-9483 (2015) Comment on: “when does a central bank’s balance sheet require fiscal support?” by Marco Del Negro and Christopher A. Sims. Journal of Monetary Economics, 73. pp. 20-25. ISSN 0304-3932

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Abstract

central bank is insolvent if its plans imply a Ponzi scheme on reserves so the price level becomes infinity. If the central bank enjoys fiscal support, in the form of a dividend rule that pays out net income every period, including when it is negative, it can never become insolvent independently of the fiscal authority. Otherwise, this note distinguishes between intertemporal insolvency, rule insolvency, and period insolvency. While period and rule solvency depend on analyzing dividend rules and sources of risk to net income, evaluating intertemporal solvency requires overcoming the difficult challenge of measuring the present value of seignorage.

Item Type:	Article
Official URL:	http://www.elsevier.com/locate/issn/03043932
Additional Information:	© 2015 Elsevier B. V.
Divisions:	Economics
Subjects:	H Social Sciences > HG Finance
JEL classification:	E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E59 - Other
Date Deposited:	01 Apr 2016 11:15
Last Modified:	01 Nov 2024 05:26
URI:	http://eprints.lse.ac.uk/id/eprint/65867

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