Pierpaolo Benigno
A Central Bank Theory of Price Level Determination
Maggio 2017
49 pagine
978-88-6856-098-0
A theory in which the central bank controls the price level is put forward as an alternative to the scal theory of the price level. It is not necessary to have a scal stimulus to avoid liquidity traps nor a scal anchor to disallow inationary spirals. A central bank appropriately capitalized can succeed to control the price level by setting the interest rate on reserves, holding risk-free assets and rebating its income to the treasury from which it has to maintain nancial independence. If the central bank undertakes unconventional open-market operations, either it has to give up its nancial independence or leaves the economy exposed to self-ful lling inationary spirals or chronic liquidity traps.