Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142744
Authors: 
Orphanides, Athanasios
Year of Publication: 
2016
Series/Report no.: 
IMFS Working Paper Series 105
Abstract: 
Under ordinary circumstances, the fiscal implications of central bank policies tend to be seen as relatively minor and escape close scrutiny. The global financial crisis of 2008, however, demanded an extraordinary response by central banks which brought to light the immense power of central bank balance sheet policies as well as their major fiscal implications. Once the zero lower bound on interest rates is reached, expanding a central bank's balance sheet becomes the central instrument for providing additional monetary policy accommodation. However, with interest rates near zero, the line separating fiscal and monetary policy is blurred. Furthermore, discretionary decisions associated with asset purchases and liquidity provision, as well as with lender-of-last-resort operations benefiting private entities, can have major distributional effects that are ordinarily associated with fiscal policy. In the euro area, discretionary central bank decisions can have immense distributional effects across member states. However, decisions of this nature are incompatible with the role of unelected officials in democratic societies. Drawing on the response to the crisis by the Federal Reserve and the ECB, this paper explores the tensions arising from central bank balance sheet policies and addresses pertinent questions about the governance and accountability of independent central banks in a democratic society.
Subjects: 
quantitative easing
lender of last resort
monetary financing
loss sharing
central bank independence
central bank accountability
central bank governance
rules vs discretion
JEL: 
E52
E58
E61
G01
H12
Document Type: 
Working Paper

Files in This Item:
File
Size
315.91 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.