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Central Bank Capital and Credibility: A Literature Survey

Atsushi Tanaka ()
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Atsushi Tanaka: Kwansei Gakuin University

Comparative Economic Studies, 2021, vol. 63, issue 2, No 4, 249-262

Abstract: Abstract Research on central bank capital and credibility evolved from being an interest of developing countries to that of developed countries, following the 2008 global financial crisis. There is growing concern about central bank balance sheets at exit from quantitative easing. This paper surveys the literature in this context. It starts by citing early literature, which suggests that a central bank with insufficient capital may be pressured to pursue an inflationary policy at a time of crisis, thereby jeopardizing its credibility. A theoretical analysis of this problem is carried out using central bank budget constraints, and its intertemporal variant, leading to consideration of the solvency of the central bank. Several central banks make fiscal transfers to the government, and their solvency situation is influenced by whether they have fiscal transfers to and from the government or not.

Keywords: Central bank; Solvency; Financial strength; Monetary policy; Quantitative easing; E52; E58 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1057/s41294-020-00142-z

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