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Credibility of the Central Bank and Substainability of the Fiscal Policy

Agnès Labye Maître de conférences, EconomiX, université Paris Ouest Nanterre La Défense. Contact :

Since the beginning of the crisis of 2008, the credibility of central banks is again an important question. Indeed, in spite of their independence and the success of their monetary policy, based on price stability, they were not able to ensure financial stability. To restore it and save the banking systems, central banks and states, whose deficits strongly increased, had to conduct new joint actions.

The subject of this article is to show the unsuitable character of the monetarist literature devoted to the credibility of the central bank prior to the crisis and the inevitable dependence between monetary and fiscal policies questioning the independence of central banks which they seek to preserve by “disconnecting” the banking crisis and the sovereign debt, in particular in Europe. The observation of the results shows that the choices operated by central banks, essentially providing liquidity, only strengthen their credibility.

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