The Mystique Surrounding the Central Bank's Balance Sheet, Applied to the European Crisis
AbstractIn spite of the mystique behind a central bank's balance sheet, its resource constraint bounds the dividends it can distribute by the present value of seignorage, which is a modest share of GDP. 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 InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18730.
Date of creation: Jan 2013
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Other versions of this item:
- Ricardo Reis, 2013. "The Mystique Surrounding the Central Bank's Balance Sheet, Applied to the European Crisis," American Economic Review, American Economic Association, vol. 103(3), pages 135-40, May.
- 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.
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-03 (All new papers)
- NEP-CBA-2013-02-03 (Central Banking)
- NEP-EEC-2013-02-03 (European Economics)
- NEP-MAC-2013-02-03 (Macroeconomics)
- NEP-MON-2013-02-03 (Monetary Economics)
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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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