Using a simple, general equilibrium model, we argue that it would be appropriate for a
central bank with a large balance sheet composed of long-duration nominal assets to have
access to, and be willing to ask for, support for its balance sheet by the fiscal authority.
Otherwise its ability to control inflation may be at risk. This need for balance sheet support—
a within-government transaction—is distinct from the need for fiscal backing of inflation
policy that arises even in models where the central bank׳ s balance sheet is merged with …

A central bank whose assets and liabilities are both nominal cannot produce a uniquely
determined price level, no matter what policies it adopts, unless it is backed by a treasury
with the power to tax. If it is so backed, the backing need not be visible in equilibrium; it can
be a commitment by the treasury to act in circumstances that do not occur in equilibrium, and
the action required in those circumstances need not be large. A central bank, though, can
require fiscal transfers on the equilibrium path even when fiscal backing makes the price …