Report

When does a central bank’s balance sheet require fiscal support?

Abstract: Using a simple general equilibrium model, we argue that it would be appropriate for a central bank with a large balance sheet composed of long-duration nominal assets to have access to, and be willing to ask for, support for its balance sheet by the fiscal authority. Otherwise its ability to control inflation may be at risk. This need for balance sheet support?a within-government transaction?is distinct from the need for fiscal backing of inflation policy that arises even in models where the central bank?s balance sheet is merged with that of the rest of the government.

Keywords: central bank’s balance sheet; solvency; monetary policy;

JEL Classification: E58; E59;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2015-03-01

Number: 701

Note: For a published version of this report, see Marco Del Negro and Christopher A. Sims, "When Does a Central Bank’s Balance Sheet Require Fiscal Support?" Journal of Monetary Economics 73 (July 2015): 1-19.