Fiscal Dominance: Implications for Bond Markets and Central Banking

Jean Barthelemy, Eric Mengus and Guillaume Plantin ()
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Guillaume Plantin: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique

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Abstract: Fiscal dominance refers to situations in which monetary policy is constrained by the public sector's budget constraint. Large shifts in the dynamics of sovereign debts, surpluses, and central bank's balance sheets since the Great Financial Crisis have created the perception of a heightened risk of such fiscal dominance in major jurisdictions. This paper reviews the theoretical and empirical literature on fiscal dominance. We offer a simple theory in which fiscal dominance arises as the outcome of strategic interactions between the government and the central bank.

Keywords: Fiscal dominance; game of chicken; Fiscal-Monetary Interactions (search for similar items in EconPapers)
Date: 2024-11-08
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Working Paper: Fiscal Dominance: Implications for Bond Markets and Central Banking (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05107631

DOI: 10.2139/ssrn.4989409

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