The Power of Central Bank Balance Sheets

Athanasios Orphanides

No 21-E-10, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: When interest rate policy is hampered by the Zero Lower Bound (ZLB), quantitative easing and other balance sheet policies become essential tools for responding to a crisis or deflationary shock. By unleashing the power of their balance sheets at the onset of the pandemic, without the hesitation observed in past encounters with the ZLB, the Federal Reserve, the European Central Bank and the Bank of Japan provided monetary easing that cushioned the economic blow, served as a backstop to government securities and private assets that prevented a financial market meltdown and facilitated the financing of an essential fiscal expansion. This paper examines how this policy success materialized, drawing on lessons learned from previous encounters with the ZLB, and discusses policy challenges after the pandemic.

Keywords: Zero lower bound; Balance sheet policies; Quantitative easing; Eligibility; Fiscal-monetary interactions (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-isf, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Journal Article: The Power of Central Bank Balance Sheets (2021)
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