Larger Central Bank Balance Sheets: A New Normal for Monetary Policy?

2020 ◽  
pp. 41-54
Author(s):  
Srichander Ramaswamy ◽  
Philip Turner
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
New Normal ◽  
Balance Sheets ◽  
Bank Balance Sheets

The Decline of Simplicity and the Rise of Unorthodoxy

2017 ◽  
Author(s):  
Pierre L. Siklos
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Central Banks ◽  
Policy Uncertainty ◽  
Structural Factors ◽  
Balance Sheets ◽  
Advanced Economies ◽  
The World ◽  
Bank Balance Sheets ◽  
Clear Idea

Crises come in various forms, and their impact is not predicable with much accuracy. Crises in emerging markets are not the same as those in advanced economies. By 2007, the idea that monetary policy ought to be rules-based was widely accepted and copied around the world. Policymakers believed that inflation and macroeconomic slack were all that mattered. Demographic and structural factors were underappreciated. The wrong conclusions are now being drawn: rules should not be abandoned, but monetary policy can be improved. Monetary policy now relies more on words. An expansion of central bank balance sheets has taken place and central bank independence is a quaint idea. Central banks no longer influence just prices; they also change financial system quantities. This leads to rising policy uncertainty. Central banks stand accused of hubris, with little clear idea of the “new normal” and how this will redefine a future monetary policy strategy.

Paper Money

2013 ◽  
Vol 103 (2) ◽  
pp. 563-584 ◽  
Author(s):  
Christopher A Sims
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Central Bank ◽  
Sovereign Debt ◽  
Price Level ◽  
Balance Sheets ◽  
Policy Interactions ◽  
Paper Money ◽  
Bank Balance Sheets

Drastic changes in central bank operations and monetary institutions in recent years have made previously standard approaches to explaining the determination of the price level obsolete. Recent expansions of central bank balance sheets and of the levels of richcountry sovereign debt, as well as the evolving political economy of the European Monetary Union, have made it clear that fiscal policy and monetary policy are intertwined. Our thinking and teaching about inflation, monetary policy, and fiscal policy should be based on models that recognize fiscal-monetary policy interactions. (JEL E31, E52, E58, E62, H63)

Monetary policy and redistribution: information from central bank balance sheets in the Euro area and the US

2013 ◽  
Vol 64 (3) ◽  
Author(s):  
Philippine Cour-Thimann
Keyword(s):  
New York ◽  
Monetary Policy ◽  
Central Bank ◽  
Euro Area ◽  
Financial Sector ◽  
Central Banks ◽  
Balance Sheets ◽  
The Us ◽  
Bank Balance Sheets ◽  
Redistributive Effects

AbstractThe exceptional measures by central banks during the financial crisis have led to renewed interest in the redistributive effects of monetary policy. This paper adopts the perspective of central bank balance sheets to assess such effects. It uses information from the euro area National Central Banks and the US Federal Reserve Banks to analyse the regional and sectoral effects of monetary policy. Central bank balance sheets capture sustained imbalances in payment flows across the euro area countries that peaked at 10% of GDP in the so-called Target balances, and across the US districts that reached 5% of GDP in the equivalent Interdistrict Settlement Accounts. These imbalances, combined with accommodative central bank liquidity, shifted risks from the private financial sector to the public sector and among taxpayers - yet, mechanisms are in place to mitigate such risks and the associated redistributive effects. The liquidity injection, while directly channelled at the stressed regions or sectors, has indirectly supported the financial sector at large. In different institutional contexts, the financial centres in Germany and in the New York district have been strengthened. They have been net recipients of payment inflows from the rest of the respective currency areas, equivalent in amounts to a third of the liquidity injection during the crisis.

scholarly journals Conventional Monetary Policy

2021 ◽  
pp. 29-51
Author(s):  
Ulrich Bindseil ◽  
Alessio Fotia
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Financial Stability ◽  
Balance Sheet ◽  
Central Banks ◽  
Control Measures ◽  
Short Term ◽  
Balance Sheets ◽  
Bank Balance Sheets

AbstractThis chapter introduces conventional monetary policy, i.e. monetary policy during periods of economic and financial stability and when short-term interest rates are not constrained by the zero lower bound. We introduce the concept of an operational target of monetary policy and explain why central banks normally give this role to the short-term interbank rate. We briefly touch macroeconomics by outlining how central banks should set interest rates across time to achieve their ultimate target, e.g. price stability, and we acknowledge the complications in doing so. We then zoom further into monetary policy operations and central bank balance sheets by developing the concepts of autonomous factor, monetary policy instruments, and liquidity-absorbing and liquidity providing balance sheet items. Subsequently we explain how these quantities relate to short-term interest rates, and how the central bank can rely on this relation to steer its operational target, and thereby the starting point of monetary policy transmission. Finally, we explain the importance of the collateral framework and related risk control measures (e.g. haircuts) for the liquidity of banks and for the conduct of central bank credit operations.

scholarly journals Complexity, Uncertainty, and Monetary Policy: Can the ECB Avoid the Unconventional Becoming the ‘New Normal’?

2019 ◽  
Vol 16 (1) ◽  
Author(s):  
Christopher A. Hartwell
Keyword(s):  
Monetary Policy ◽  
Structural Change ◽  
Central Bank ◽  
Euro Area ◽  
European Central Bank ◽  
Unresolved Issue ◽  
Unconventional Monetary Policy ◽  
New Normal ◽  
European Central

Abstract Worries about Italy and the unresolved issue of euro governance – coupled with uncertainty surrounding Brexit – means that the European Central Bank (ECB) may already be facing its next crisis in the euro area. Unfortunately, the ECB is still fighting the last war, deploying the tools of unconventional monetary policy to address lingering problems while unable institutionally to address needed structural change. This paper looks at the ECB as an institution amongst institutions and shows how even more unconventional approaches will not help to bolster the economy of the euro area. Indeed, given the complexity of money, the effects of expectations, and continued uncertainty, expanding the ECB’s unconventional arsenal is likely to have deleterious consequences across Europe.

Unconventional Monetary Policies - Recent Experiences and Prospects - Background Paper

Policy Papers ◽  
2013 ◽  
Vol 2013 (29) ◽  
Author(s):  
Keyword(s):  
Central Bank ◽  
Emerging Market ◽  
Spillover Effects ◽  
The United States ◽  
Background Information ◽  
Bond Yields ◽  
Monetary Policies ◽  
Balance Sheets ◽  
One Step ◽  
Bank Balance Sheets

This paper provides background information to the main Board paper, “The Role and Limits of Unconventional Monetary Policy.” This paper is divided in five distinct sections, each focused on a different topic covered in the main paper, though most relate to bond purchase programs. As a result, this paper centers on the experience of the United States Federal Reserve (Fed), the Bank of England (BOE) and the Bank of Japan (BOJ), mostly leaving the European Central Bank (ECB) aside given its focus on restoring the functioning of financial markets and intermediation. Section A explores whether bond purchase programs were effective at decreasing bond yields and, if so, through which channels. Section B goes one step further in evaluating whether bond purchase programs had—or can be expected to have—significant effects on real growth and inflation. Section C studies the spillover effects of bond purchases on both advanced and emerging market economies, using very similar methods as introduced in the first section. Section D breaks from the immediate focus on bond purchases to discuss how inflation might decrease the debt burden in advanced economies, in light of possible pressures that could fall (or be perceived to fall) on central banks. Finally, Section E discusses the possible risks of exiting given the very large central bank balance sheets.

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