IDEAS home Printed from https://ideas.repec.org/a/ijc/ijcjou/y2013q0a17.html
   My bibliography  Save this article

Central Banking in a Balance Sheet Recession

Author

Listed:
  • Jaime Caruana

    (Bank for International Settlements)

Abstract

It is a great pleasure and a privilege to have been invited to speak at this prestigious event in honor of Don Kohn. The breadth of this topic - central banking before, during, and after the crisis - matches the breadth of Don's contribution. We at the Bank for International Settlements have benefited enormously from his experience, his thoughtful analysis, and his extraordinary common sense. Don is the quintessential central banker. The topic of the conference is a challenging one. There is no question that the crisis has been a defining moment in the history of central banking. It has raised first - order economic, intellectual, and institutional challenges that, I suspect, will profoundly change central banking in the years ahead. In my remarks today, however, I will just focus on one of them: central banking in a balance sheet recession. The question is how to formulate policies that reduce the risk of protracted weakness and accelerate the return to a self - sustained recovery. My main message is simple. Unquestionably, decisive action by central banks during the crisis has played a critical role in preventing a financial meltdown and a potential deflationary spiral. But the policies that are most suited to crisis management are not necessarily the best for crisis resolution. By crisis resolution, I mean the stage after the most acute crisis phase, when balance sheet repair must be addressed head-on to ensure a self - sustained recovery. Then, unless other fundamental measures are taken, there is a serious risk of overburdening monetary policy. From this balance sheet perspective, extraordinarily easy monetary policy-through both interest rates and the forceful use of central bank balance sheets-can certainly buy time, but it can also make it easier to waste that time. It is therefore important to acknowledge the possible limitations of this policy, to study them further, and to communicate them clearly. In what follows, I shall first set the stage by exploring the special features of balance sheet recessions. I shall then turn to what monetary policy can and cannot do. I will then conclude with some reflections on the longer-term political economy and institutional challenges, with special attention to the need to preserve central banks’ autonomy.

Suggested Citation

  • Jaime Caruana, 2013. "Central Banking in a Balance Sheet Recession," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 367-372, January.
  • Handle: RePEc:ijc:ijcjou:y:2013:q:0:a:17
    as

    Download full text from publisher

    File URL: http://www.ijcb.org/journal/ijcb13q0a17.pdf
    Download Restriction: no

    File URL: http://www.ijcb.org/journal/ijcb13q0a17.htm
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:wsi:serxxx:v:62:y:2017:i:01:n:s0217590817400033 is not listed on IDEAS

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ijc:ijcjou:y:2013:q:0:a:17. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bank for International Settlements). General contact details of provider: http://www.ijcb.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.