DP14160 Public Liquidity Demand and Central Bank Independence

Author(s): Jean Barthelemy, Eric Mengus, Guillaume Plantin
Publication Date: November 2019
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14160

This paper studies how private demand for public liquidity affects the independence of a central bank vis-a-vis the fiscal authority. Whereas supplying liquidity to the private sector creates degrees of freedom for fiscal and monetary authorities vis-a-vis each other, we show that the authority that is most able to attract private liquidity demand can ultimately impose its views to the other.