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Central bank financial strength and inflation: an empirical reassessment considering the key role of the fiscal support

Julien Pinter

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This paper re-examines whether weak central bank finances affect inflation by scrutinizing the key rationale for such a relationship: that the absence of Treasury support makes central bank finances relevant for price stability. Specifically, I ask whether central banks which are not likely to enjoy fiscal support when needed experience higher inflation as their inflation as their financial situation deteriorates. I find this to be true among a large sample of 82 countries between 1998 and 2008. De facto potential fiscal support appears relevant, while de jure fiscal support, which I survey analyzing 82 central bank laws, does not appear to matter. No link is found in a general context. The results bring forward an explanation for the conflicting results of the previous empirical studies, which neglected this key component.

Keywords: Central bank financial strength; Central bank capital; Central bank balance sheet; Inflation; Fiscal space; Central bank law (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mon
Date: 2017-10
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01660945
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Published in 2017

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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-01660945

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