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The interaction of Monetary and Fiscal Policies and institutions: Central Banks and Treasuries

Banque de France – EUI mini-conference 

Date: 7 October 2021, 17:00 – 20:00 (CET). Format: hybrid

With developed countries’ sovereign debt levels at an historical high and interest rates still in the shadow of the effective lower-bound, the full recovery from the Covid-19 crisis requires a right mix of monetary and fiscal stimulus and stabilisation policies. Therefore, it requires effective institutional interaction between central banks and treasuries. Even in the U.S., with a long historical collaboration between the Federal Reserve Bank and the U.S. Treasury, this interaction is under scrutiny, as the dividing line, between monetary liabilities (dollars and bank reserves) and sovereign debt (Treasuries), is becoming fuzzier, and the fiscal nature and impact of monetary (QE) policies is becoming more apparent. In Europe there is no common EU Treasury. Nevertheless, the Eurosystem now holds almost 30% of the sovereign debt of the euro area Member States and, with Next Generation EU (NGEU), the European Commission can lend up to 800bn to EU Member States, mostly issuing Eurobonds, becoming a temporary Treasury-like counterpart of the ECB for the euro area. This scenario opens a debate on how monetary and fiscal policies and institutions should interact. The goal of this mini-conference is to contribute to it from the perspectives of economic theory and policy.

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