A korrentour reading

Canceling government bonds held by a central bank creates no fiscal space, because the reduction in government interest payments is exactly offset by an equal reduction in the profits the central bank remits to the government.

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A korrent — “current”, with a K — is our reading of what someone said: one sentence, drawn from their own words below. People put the same thought in different words; a korrent tries to name the thought they share, so that what several people mean can be set side by side, and followed as it changes.

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What Olivier Blanchard actually said

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OB
Olivier Blanchard 1 Jun 2022

The proposition is that the cancellation of the bonds held by the central bank would decrease the amount of interest payments and thus the debt service of governments. And indeed, it would. But it would have another effect—namely, to decrease the revenues of the central bank and thus the profits that the central bank turns in to the government. This second effect would be exactly of the same size as the first, and the net effect on the government budget constraint would be equal to zero.

↗Fiscal Policy under Low Interest Ratesdirect.mit.edu

First recorded here 1 Jun 2022 · How quotes work

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