Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/105563 
Year of Publication: 
2012
Series/Report no.: 
School of Economics Discussion Papers No. 1208
Publisher: 
University of Kent, School of Economics, Canterbury
Abstract: 
The financial crisis and its aftermath has stimulated a vigorous debate on the use of macro-prudential instruments for both regulating the banking system and for providing additional tools for monetary policy makers. The widespread adoption of non-conventional monetary policies has provided some evidence on the efficacy of liquidity and asset purchases for offsetting the lower zero bound. Central banks have thus been reminded as to the effectiveness of extended open market operations as a supplementary tool of monetary policy. These tools are essentially fiscal instruments, as they issue central bank liabilities backed by fiscal transfers. And so having written these tools into the fiscal budget constraint, we can examine the consequences of these operations within the context of a micro-founded macroeconomic model of banking and money. We can mimic the responses of the Federal Reserve balance sheet to the crisis. Specifically, we examine the role of reserves for bond and capital swaps in stabilising the economy and also the impact of changing the composition of the central bank balance sheet. We find that such policies can significantly enhance the ability of the central bank to stabilise the economy. This is because balance sheet operations supply (remove) liquidity to a financial market that is otherwise short (long) of liquidity and hence allows other .nancial spreads to move less violently over the cycle to compensate.
Subjects: 
non-conventional monetary interest on reserves
monetary and fiscal policy instruments
Basel III
JEL: 
E31
E40
E51
Document Type: 
Working Paper

Files in This Item:
File
Size
520.93 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.