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Issues in the Use of the Balance Sheet Tool

Mark Carlson (), Stefania D'Amico, Cristina Fuentes-Albero (), Bernd Schlusche and Paul R. Wood

No 2020-071, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper considers various ways of using balance sheet policy (BSP) to provide monetary policy stimulus, including the BSPs put in place by the Federal Reserve in the wake of the Global Financial Crisis, the choice between fixed-size and flow-based asset purchase programs, policies targeting interest rate levels rather than the quantity of asset purchases, and programs aimed at increasing more direct lending to households and firms. For each of these BSP options, we evaluate benefits and costs. We conclude by observing that BSPs’ relative effectiveness and thus optimal configuration will depend on the shocks affecting the economy. Consequently, it would be valuable for the Federal Reserve to keep a variety of tools at its disposal and employ the ones that best fit the situation that it faces.

Keywords: Balance sheet policy; Quantitative easing; Yield curve control; Credit easing; Central bank lending authority (search for similar items in EconPapers)
JEL-codes: E43 E44 E58 G12 G21 G51 (search for similar items in EconPapers)
Pages: 38
Date: 2020-08-27
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-71

DOI: 10.17016/FEDS.2020.071

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