A Central Bank Theory of Price Level Determination

Pierpaolo Benigno

American Economic Journal: Macroeconomics, 2020, vol. 12, issue 3, 258-83

Abstract: This paper develops a theory in which the central bank can control the price level without fiscal backing. It is shown that the remittances policy and the balance sheet of the central bank are important elements to specify. A central bank that is appropriately capitalized can succeed in controlling prices by setting the interest rate on reserves, holding short-term assets, and rebating its income to the treasury from which it has to maintain financial independence.

JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (18)

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Working Paper: A Central Bank Theory of Price Level Determination (2017)
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DOI: 10.1257/mac.20190008

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