A Note on the Measurement of Currency in Circulation and Reserve Money Using Central 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.

The Decline of Simplicity and the Rise of Unorthodoxy

10.1093/oso/9780190228835.003.0004 ◽

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.

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

Asset Management at Central Banks and Monetary Authorities ◽

10.1007/978-3-030-43457-1_3 ◽

2020 ◽

pp. 41-54

Author(s):

Srichander Ramaswamy ◽

Philip Turner

Keyword(s):

Monetary Policy ◽

Central Bank ◽

New Normal ◽

Balance Sheets ◽

Bank Balance Sheets

Understanding the effects of growing central bank balance sheets on investment

Economic Affairs ◽

10.1111/ecaf.12434 ◽

2020 ◽

Vol 40 (3) ◽

pp. 385-394

Author(s):

Bryane Michael

Keyword(s):

Central Bank ◽

Balance Sheets ◽

Bank Balance Sheets

Paper Money

The American Economic Review ◽

10.1257/aer.103.2.563 ◽

2013 ◽

Vol 103 (2) ◽

pp. 563-584 ◽

Cited By ~ 83

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)

Central Bank Balance Sheets: Expansion and Reduction Since 1900

SSRN Electronic Journal ◽

10.2139/ssrn.2615738 ◽

2015 ◽

Author(s):

Niall Ferguson ◽

Andreas Schaab ◽

Moritz Schularick

Keyword(s):

Central Bank ◽

Balance Sheets ◽

Bank Balance Sheets

International Monetary Frameworks

Introduction to Central Banking - SpringerBriefs in Quantitative Finance ◽

10.1007/978-3-030-70884-9_7 ◽

2021 ◽

pp. 101-121

Author(s):

Ulrich Bindseil ◽

Alessio Fotia

Keyword(s):

Exchange Rate ◽

Central Bank ◽

Foreign Currency ◽

Balance Sheet ◽

Lender Of Last Resort ◽

Balance Sheets ◽

Fixed Exchange Rate ◽

International Monetary Arrangements ◽

Recent Developments ◽

Bank Balance Sheets

AbstractIn this chapter we turn to representing flows of funds in alternative international monetary frameworks, and what global liquidity these different frameworks provide. We first recall some arguments in favour of and against fixed exchange rate systems. We then introduce two international monetary arrangements of the past which imply fixed exchange rates, namely the gold standard and the Bretton Woods system, and recall why both eventually failed. We then turn to three international monetary frameworks in the context of the current paper standard, i.e. fixed exchange rate systems, flexible exchange rate systems, and the European monetary union. We explain the role of an international lender of last resort and related solutions, and how these allow for more leeway in running fixed exchange rate systems. We also show how banks and central bank balance sheets are affected by international flows of funds and the balance of payments. Finally, we briefly review recent developments of foreign currency reserves, being the key central bank balance sheet position in this context.

TARGET2 and central bank balance sheets

Economic Policy ◽

10.1111/1468-0327.12025 ◽

2014 ◽

Vol 29 (77) ◽

pp. 79-137 ◽

Cited By ~ 27

Author(s):

Karl Whelan

Keyword(s):

Central Bank ◽

Balance Sheets ◽

Bank Balance Sheets

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

Review of Economics ◽

10.1515/roe-2013-0303 ◽

2013 ◽

Vol 64 (3) ◽

Cited By ~ 4

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.