Central bank balance sheet, money and inflation

Samuel Reynard

Economics Letters, 2023, vol. 224, issue C

Abstract: Strong central banks’ balance sheet expansions in response to economic crises have been followed by different inflation paths. This paper shows that whether or not those expansions resulted in a substantial increase in inflation is function of the associated broad money expansion, which depends on whether the private sector was part of the money creation process as an intermediary to the central bank financing the government. Inflation can be explained by an equilibrium analysis based on the quantity theory of money. This analysis explains why inflation remained low after quantitative easing in the US following the global financial crisis, but has substantially and persistently increased after the Covid-19 pandemic.

Keywords: Central bank balance sheet; Inflation; Monetary aggregates; Quantitative easing (search for similar items in EconPapers)
JEL-codes: E41 E52 E58 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:224:y:2023:i:c:s0165176523000538

DOI: 10.1016/j.econlet.2023.111028

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