ABSTRACT
Public institutions vary from country to country. Just as constitutions define different rights and duties, as well as institutions to enforce and protect these, central banks are not identical to each other. The model central bank we’ll work with in this section is not the central bank; it is a central bank. In the following, we describe a central bank that’s cooperating with a Treasury, which implies that the government cannot go bankrupt: the central bank is allowed to grant unlimited credit to the government. Moreover, both short-and long-term interest rates stay at a very low level even in the case of supposed debt overhang crises. This can be seen today in countries like the US, Japan, the UK, Sweden and many more. The regime explained in the following does not fully apply to the Eurozone, where originally the possibility of bankruptcy of Eurozone members’ national governments was allowed for, even though European institutions have moved away from that principle somewhat recently.
