Unconventional Monetary Policies - Lessons from the Evolution of Balance Sheets of Four Central Banks (2007–2010)

Abstract

The main focus of the paper is on the behavior of central banks, which during the crisis have radically changed the traditional tools of interventions taking many measures generally termed “unconventional monetary policies”. Four central banks are taken into consideration: Federal Reserve System, Eurosystem, Bank of England and Swiss National Bank. Their behavior is analyzed by considering the evolution of their balance sheets from the starting of the crisis until end-2010.

The first part of the paper gives an assessment of the overall expansion registered by the size of central banks’ balance sheets. Measures undertaken by central banks show some similarities but there are also substantial differences across countries which may be seen looking at the main changes in the composition of balance sheets.

Before the financial crisis the asset side mainly reflected the operational framework of monetary policy which was very similar in the four countries considered. During the financial crisis, to the tools traditionally used, new instruments have been added which have affected in different ways the composition of balance sheets.

The comparative analysis made in the paper shows that the most striking change in the composition of central banks’ balance sheets has been the substantial increase of long-term securities which, especially in the United States and in the United Kingdom, has taken place as a consequence of asset purchases. In the final part of the paper some remarks are made on the effects of asset purchases on financial markets and on the problems central banks will have to face when, with a recovery of financial markets and economies, they will have to decide an exit strategy aimed at reducing the expansionary stance of monetary policies.

Keywords: Central banks’ balance sheets, Unconventional monetary policies, Central banks’ exit strategies

JEL Classification: E51, E58, G01