Funders-of-Last-Resort: Legal Issues Involved in Using Central Bank Balance Sheets to Bolster Economic Growth

96 Pages Posted: 24 Aug 2017

See all articles by Bryane Michael

Bryane Michael

University of Oxford

Viktoria Dalko

Hult International Business School; Harvard University

Date Written: August 22, 2017


What role does unconventional monetary policy – and particularly unconventional policies like private asset purchases under a quantitative easing or lender of last resort scheme – play in influencing economic growth directly? Emerging and developing countries’ central banks could contribute to GDP growth by following the example of jurisdiction like the US, UK and EU, by buying private sector and specific obligation public sector assets. Such a scheme would like most benefit jurisdictions like Greece, Bulgaria, Ukraine and others. Unsurprisingly, we find a weak relationship between these purchases and investment world-wide for the last 10 years. We also find the existence of a “sloth effect” – a pattern in the data whereby more central bank asset purchases actually coincides with lower investment. We estimate the gains to increasing central bank balance sheet sizes with these assets. We also show how statutory mandate for nominal GDP targeting set the best legal foundations for such asset purchases. We finally describe an internal audit engagement which would collect the specific data needed to verify the results in this study.

Keywords: funder of last resort, unconventional monetary policy, central bank balance sheet, nominal GDP targeting, internal audit, sloth effect

JEL Classification: E58, E42, K23, O23

Suggested Citation

Michael, Bryane and Dalko, Viktoria, Funders-of-Last-Resort: Legal Issues Involved in Using Central Bank Balance Sheets to Bolster Economic Growth (August 22, 2017). Available at SSRN: or

Bryane Michael (Contact Author)

University of Oxford ( email )

South Parks Road
Oxford, Oxfordshire OX1 3QY
United Kingdom


Viktoria Dalko

Hult International Business School ( email )

One Education Street
Cambridge, MA 02141
United States


Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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