EconPapers    
Economics at your fingertips  
 

The Central Bank's Balance Sheet as an Instrument of Monetary Policy

Michael Woodford () and Vasco Cúrdia ()

No 136, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: While many analyses of monetary policy consider only the adjustment of a central bank's target for a short-term nominal interest rate, other dimensions of policy have recently been of greater importance: changes in the supply of bank reserves beyond those required to achieve an interest-rate target, changes in the assets acquired by central banks, and changes in the interest rate paid on reserves. We extend a standard New Keynesian model to allow a role for the central bank's balance sheet in equilibrium determination, and consider the connections between these alternative dimensions of policy and traditional interest-rate policy. We distinguish between ``quantitative easing'' in the strict sense and targeted asset purchases by a central bank, and argue that while the former is likely be ineffective at all times, the latter dimension of policy can be effective when financial markets are sufficiently disrupted. Neither is a perfect substitute for conventional interest-rate policy, but purchases of illiquid assets are particularly likely to improve welfare when the zero lower bound on the policy rate is reached. We also consider optimal policy with regard to the payment of interest on reserves, and argue that the interest rate on reserves should be kept near the central bank's target for the policy rate at all times.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed

Downloads: (external link)
https://economicdynamics.org/meetpapers/2010/paper_136.pdf (application/pdf)

Related works:
Journal Article: The central-bank balance sheet as an instrument of monetarypolicy (2011) Downloads
Working Paper: The central-bank balance sheet as an instrument of monetary policy (2010) Downloads
Working Paper: The Central-Bank Balance Sheet as an Instrument of Monetary Policy (2010) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed010:136

Access Statistics for this paper

More papers in 2010 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2021-07-14
Handle: RePEc:red:sed010:136