The Mystique Surrounding the Central Bank's Balance Sheet, Applied to the European Crisis
AbstractA central bank's resource constraint bounds the dividends it can distribute by the present value of seignorage, which is a modest share of GDP. This is in spite of the mystique behind a central bank's balance sheet. Moreover, the statutes of the Federal Reserve or the ECB make it difficult for it to redistribute resources across regions. In a simple model of sovereign default, where multiple equilibria arise if debt repudiation lowers fiscal surpluses, the central bank may help to select one equilibrium. The central bank's main lever over fundamentals is to raise inflation, but otherwise the balance sheet gives it little leeway.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 103 (2013)
Issue (Month): 3 (May)
Other versions of this item:
- Reis, Ricardo, 2013. "The mystique surrounding the central bank’s balance sheet, applied to the European crisis," CEPR Discussion Papers 9326, C.E.P.R. Discussion Papers.
- Ricardo Reis, 2013. "The Mystique Surrounding the Central Bank's Balance Sheet, Applied to the European Crisis," NBER Working Papers 18730, National Bureau of Economic Research, Inc.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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- David Greenlaw & James D. Hamilton & Peter Hooper & Frederic S. Mishkin, 2013. "Crunch Time: Fiscal Crises and the Role of Monetary Policy," NBER Working Papers 19297, National Bureau of Economic Research, Inc.
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