Overstrained Saviours: Central banks, Public Finances, and the End of the Money Illusion

Volume 9, Issue 1, February 2024     |     PP. 180-188      |     PDF (246 K)    |     Pub. Date: October 18, 2023
DOI: 10.54647/economics790420    58 Downloads     922 Views  

Author(s)

Sikandar Siddiqui, Deloitte Audit Analytics GmbH, Europa-Allee 91, 60486 Frankfurt am Main, Germany

Abstract
Central banks have the ability to provide commercial banks in their currency area with liquid funds at very low costs when needed. This enables them to intervene in the financial sector to stabilise it during crisis situations. However, if the liquidity shortages in the commercial banking sector are merely symptoms of a deeper, far-reaching solvency crisis in the overall economy, and if the fiscal policy capability of the public sector is already restricted due to high levels of debt, the healing powers of monetary policy reach their limits. There is evidence suggesting that many countries in the global West could soon find themselves in such a situation.

Keywords
Monetary policy, public debt, financial stability, inflation

Cite this paper
Sikandar Siddiqui, Overstrained Saviours: Central banks, Public Finances, and the End of the Money Illusion , SCIREA Journal of Economics. Volume 9, Issue 1, February 2024 | PP. 180-188. 10.54647/economics790420

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