Should Unconventional Balance Sheet Policies Be Added to the Central Bank Toolkit? A Review of the Experience so Far

Stone, Mark; Ishi, Kotaro; Fujita, Kenji

doi:10.2139/ssrn.1873783

Cited by 13 publications

(3 citation statements)

References 23 publications

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“…Although it is straightforward to group balance sheet policies this way, classifying and defining domestic balance sheet policies can be particularly challenging. Indeed, different authors categorize and define domestic balance sheet policies very differently (Borio & Disyatat, 2009, 2010Borio & Zabai, 2016, 2018Klyuev et al, 2009;Stone et al, 2011). This thesis' categorization of domestic balance sheet policies is discussed in the paragraphs ahead.…”

Section: Based On the Policy Instrument Used By The Central Bankmentioning

confidence: 99%

The Federal Reserve’s Response to the Global Financial Crisis and its Effects: An Interrupted Time-Series Analysis of the Impact of its Quantitative Easing Programs

KAMKOUM¹

2023

Preprint

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The financial crisis that started in the U.S. at the end of 2007 and later spread to other countries was the most severe economic and financial disaster since the Great Depression. The crisis began in the U.S. housing market in August 2007, rapidly extended to other sectors of the U.S. economy, and became global following the collapse of various U.S.-based international financial institutions. To counter the negative effects of the crisis, the Federal Reserve (the central bank of the United States) and other central banks conducted monetary policies that are widely considered unconventional. This master’s thesis examines the monetary policies the Federal Reserve implemented in response to the crisis. More specifically, the thesis analyzes the Federal Reserve’s quantitative easing (QE) programs, liquidity facilities, and forward guidance operations implemented from 2007 to 2018.The thesis’ detailed examination of these policies is concluded with an interrupted time-series (ITS) analysis of the causal effects of the QE programs on U.S. inflation and real GDP. The results of this design-based natural experimental approach show that the QE operations positively affected U.S. real GDP but did not significantly impact U.S. inflation. Specifically, it is found that, for the 2011Q2-2018Q4 post-QE period, real GDP per capita in the U.S. increased by an average of 231 dollars per quarter relative to how it would have changed had the QE programs not been conducted. Moreover, the results show that, in 2018Q4, ten years after the beginning of the Federal Reserve’s QE programs, real GDP per capita in the U.S. increased by 14% relative to what it would have been during that quarter had there not been the QE programs.

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Section: Based On the Policy Instrument Used By The Central Bankmentioning

confidence: 99%

The Federal Reserve’s Response to the Global Financial Crisis and its Effects: An Interrupted Time-Series Analysis of the Impact of its Quantitative Easing Programs

KAMKOUM¹

2023

Preprint

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“…Purchases can rarely be high enough (Eggertsson and Proulx, 2016). Administrative reasons also make such policies undesirable (Stone et al, 2011) a Note(s): a Stone and his colleagues make irrefutable claims about the macroeconomic distortions and public sector distortions such purchases would cause. We purposely ignore monetary policy issues and political issues to focus our analysis on an under-researched part of the debate.…”

Section: Drawbacksmentioning

confidence: 99%

When should central banks engage in private sector securities purchases?

Michael

Dalko

2023

JES

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Purpose The authors aim to look at the conditions under which central bank easing – and specifically the purchase of private sector securities – can/should contribute to growth, rather than fiscal policy and also ask when can the central bank’s purchase of private sector securities help supplant traditional monetary policy.Design/methodology/approachAfter surveying the existing literature, the authors use simple correlation of central bank private asset (stocks, bonds, etc.), interest rates, gross domestic product (GDP) growth, inflation and the extent of the functioning of domestic banking sectors (among others) to classify countries in which these purchases promote pro-growth investment.FindingsUnder the typical conditions for unconventional monetary policy, central bank purchases of private companies’ securities can promote growth in some places (like Bulgaria, the Ukraine, Georgia and Greece at the time of our writing) while hurting it in others (like in parts of Latin America and Africa in the mid-2010s). The authors find how such purchases effectively “bypass” dysfunctional banking systems and central/government local bodies fiscal spending, making the central bank the “funder of last resort” in many middle and lower income countries.Practical implicationsThis paper tells specific central banks to ramp up – or reduce – their purchases of private sector securities. The authors identify exact jurisdictions where such “helicopter money” has led to investment in the past economic growth.Originality/valueAll previous work on conventional and unconventional monetary policy has looked at the way monetary policy affects investment and growth through the banking system and holding companies’ reactions constant. The authors do the opposite – looking at how companies respond, holding banking system responses constant. No one has ever looked at these private purchases (taken from a special IMF database), much less tried to argue that central banks can sometimes target investment growth much better than fiscal policy. No one has ever considered them as a funder (rather than lender) of last resort.

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“…Interest rate and balance sheet policies can further be subdivided into two types each. Borio & Disyatat, 2009, 2010Borio & Zabai, 2016, 2018Klyuev et al, 2009;Stone et al, 2011). This paper's categorization of domestic balance sheet policies is discussed in the paragraphs ahead.…”

Section: Based On the Policy Instrument Used By The Central Bankmentioning

confidence: 99%

The Federal Reserve’s Response to the Global Financial Crisis and Its Long-Term Impact: An Interrupted Time-Series Natural Experimental Analysis

KAMKOUM

2023

SSRN Journal

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Should Unconventional Balance Sheet Policies Be Added to the Central Bank Toolkit? A Review of the Experience so Far

Cited by 13 publications

References 23 publications

The Federal Reserve’s Response to the Global Financial Crisis and its Effects: An Interrupted Time-Series Analysis of the Impact of its Quantitative Easing Programs

The Federal Reserve’s Response to the Global Financial Crisis and its Effects: An Interrupted Time-Series Analysis of the Impact of its Quantitative Easing Programs

When should central banks engage in private sector securities purchases?

The Federal Reserve’s Response to the Global Financial Crisis and Its Long-Term Impact: An Interrupted Time-Series Natural Experimental Analysis

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