The Bank of Italy’s approach to risk-based budgeting

Bank of Italy headquarters, Rome
Bank of Italy headquarters, Rome

Nobel Prize-winning economist Christopher Sims identified two models of central banks, which he named ‘model F’ and ‘model E’, in his paper published in 2003.1

In a model F central bank, there is a very close relationship between the central bank and the Treasury, to the point that there is no doubt mature government bonds will always be converted into high-powered money and that, on the other hand, possible balance sheet problems of the central bank will be resolved by the Treasury using its

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