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The market value of a central bank

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  • Ricardo Reis

    (Columbia University)

Abstract

The fiscal capacity of a central bank is given by the present value of the seignorage from issuing banknotes plus the market value of its assets minus non-required reserves. Its size determines the solvency of a central bank and constrains unconventional monetary policy. We estimate this capacity for the US, as well as its elasticity with respect to inflation. To do so, we use balance-sheet information to measure the market value of central bank assets and how it will fall with inflation. We also estimate annual seignorage and how it varies with inflation and use options data for inflation to recover stochastic discount factors with which to value cash flows to the central bank. Our results suggest that the fiscal capacity of the Fed is large, but insensitive to plausible changes in inflation.

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  • Ricardo Reis, 2015. "The market value of a central bank," 2015 Meeting Papers 1031, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:1031
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    Cited by:

    1. Roberto Perotti, 2020. "Understanding the German Criticism of the Target System and the Role of Central Bank capital," NBER Working Papers 27627, National Bureau of Economic Research, Inc.
    2. William Roberds, 2016. "Review of Making Money: Coin, Currency, and the Coming of Capitalism by Christine Desan," Journal of Economic Literature, American Economic Association, vol. 54(3), pages 906-921, September.
    3. Ricardo Reis, 2015. "Different Types of Central Bank Insolvency and the Central Role of Seignorage," NBER Working Papers 21226, National Bureau of Economic Research, Inc.
    4. Reis, Ricardo, 2015. "Comment on: “when does a central bank’s balance sheet require fiscal support?” by Marco Del Negro and Christopher A. Sims," LSE Research Online Documents on Economics 65867, London School of Economics and Political Science, LSE Library.

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