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  4. July 2020
  5. A Central Bank Theory of Price Level Determination

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

A Central Bank Theory of Price Level Determination

  • Pierpaolo Benigno
American Economic Journal: Macroeconomics
vol. 12, no. 3, July 2020
(pp. 258–83)
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Abstract

This paper develops a theory in which the central bank can control the price level without fiscal backing. It is shown that the remittances policy and the balance sheet of the central bank are important elements to specify. A central bank that is appropriately capitalized can succeed in controlling prices by setting the interest rate on reserves, holding short-term assets, and rebating its income to the treasury from which it has to maintain financial independence.

Citation

Benigno, Pierpaolo. 2020. "A Central Bank Theory of Price Level Determination." American Economic Journal: Macroeconomics, 12 (3): 258–83. DOI: 10.1257/mac.20190008

Additional Materials

JEL Classification

  • E31 Price Level; Inflation; Deflation
  • E52 Monetary Policy
  • E58 Central Banks and Their Policies
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