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

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 8, Issue 5, October 2023 | PP. 180-188. 10.54647/economics790420

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