Central Bank Balance Sheet Policies: Some Policy Implications

Author:Manmohan Singh - Haobing Wang
Pages:1-3
SUMMARY

In this research summary, we highlight two policy implications from central bank balance sheet policies: (a) assets held due to quantitative easing are not the same as "reserves" (or deposits of the banking system at the central bank), and (b) conventional interest-rate policy and balance sheet adjustments consist of two independent dimensions of monetary policy and they differ in their... (see full summary)

 
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Volume 18, Number 3 Fall 20 17
www.imf.org/researchbulletin
B U L L E T I N
1
Leaning Against Windy Bank Lending
Giovanni Melina and Stefania Villa
In recent times credit booms and bu sts have
dramatically affected busines s cycle fluctuations.
This has calle d for a deeper understanding of
credit market conditions and the role of c entral
banks in ensuring f inancial stability. We examine
whether, during the Great Moderation, interest-
rate policy has reacted and whethe r it should have indeed reacted to bank lending
growth in the U.S. economy. A narrative analysis of the minutes of the Fed eral Open
Market Committee sugge sts a correlation between concerns on c redit conditions
and intended changes in the fede ral funds rate. This finding motivates a more
structural investigation. Using an e stimated macroeconomic model with banking,
this paper first provi des evidence that monetary policy did lean agai nst the wind
blowing from the loan market . It then shows that, although th e estimated monetary
policy feedback to bank credit grow th yields a small welfare loss, the optimal
interest-rate rule features almost no re sponse to credit conditions. Counterfactual
experiments unveil th at the sources of business cycle fluct uations are crucial in
determining whether a “ leaning-against-the-wind” policy i s optimal or not. In fact,
the predominant role of estimated supply shoc ks in the medium run gives rise to a
trade-off between inf lation and financial stabilization.
Central Bank Balance Sheet Policies:
Some Policy Implications
Manmohan Singh and Haobing Wang
In this research summary, we highlight two
policy implications from central bank balance
sheet policies: (a) assets held due to quantitative
easing are not the same as “rese rves” (or deposits
of the banking system at the central bank), and
(b) conventional interest-rate policy and balance
sheet adjustments con sist of two independent dimensions of monetar y policy and
they differ in their res pective financial spillovers to emerging market s.
Short-term policy rates in many adva nced economies (AEs) have remained
persistently low since the af termath of the recent financial cri sis. In an effort
to manage sluggish economic recoveries a nd reinvigorate growth, several
leading central ba nks (e.g., the Federal Reserve in the United States, t he Bank of
England, the Europe an Central Bank, and the Ba nk of Japan) have carried out
several rounds of quantitat ive easing (QE) to provide furt her monetary st imulus.
In This Issue
1 Central Bank Balance
Sheet Policies: Some
Policy Implications
1 Leaning Against Windy
Bank Lending
7 Q&A: Seven Questions
on the Globalization
of Farml and
10 IMF Working Papers
15 Staff Discussion Notes
15 IMF Economic Review
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Research Summaries
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