Dipartimento di Economia e Diritto

Central Banks as Fiscal Players

The Drivers of Fiscal and Monetary Policy Space

Willem Buiter

Series:Federico Caffè Lectures

Link to the book

 

Book description

It is well known that the balance sheets of most major central banks significantly expanded in the aftermath of the financial crisis of 2007-2011, but the consequences of this expansion are not well understood. This book develops a unified framework to explain how and why central bank balance sheets have expanded and what this shift means for fiscal and monetary policy. Buiter addresses a number of key issues in monetary economics and public finance, including how helicopter money works, when modern monetary theory makes sense, why the Eurosystem has a potentially fatal design flaw, why the fiscal theory of the price level is a fallacy and how to escape from the zero lower bound.

Reviews

'This book is the culmination of a long series of prior studies by the author into the proper accounting for a Central Bank within the balance sheet of the State, made particularly interesting by the fact that its liabilities are nowadays, usually, irredeemable. Willem Buiter rigorously examines important subjects such as how Central Bank operations add fiscal space to the Treasury; how helicopter money drops will always be expansionary; why the fiscal theory of the price level is just wrong, how deeply negative nominal interest rates can be implemented and why National Central Banks within the Euro-area are unusually exposed to risk.'

Charles Goodhart - London School of Economics

'An important book by one of the deepest and most original thinkers in the field of modern central banking. Today, more than ever, the fiscal side of central banks has taken increasing precedence over traditional interest rate policy. Yet, frighteningly few scholars and policymakers truly understand the connections. Buiter’s clear-headed focus on intergovernmental and intertemporal budget constraints will give readers a far better understanding. It might even catalyze a much-needed rethink of monetary and fiscal policy at the zero bound.'

Kenneth Rogoff - Harvard University

'Willem Buiter is the acknowledged master of the public sector accounts. In this timely little volume, he exposes the intimate connection between the central bank and the fiscal authorities, delivering a series of provocative insights regarding the scope for monetary finance, the efficacy of ‘helicopter money’, the validity of the ‘fiscal theory of the price level’, the elimination of the interest-rate lower bound, and the flaws in the architecture of the European Monetary Union.'

Charles Bean - London School of Economics