Issues in the Use of the Balance Sheet Tool

38 Pages Posted: 2 Sep 2020

See all articles by Mark A. Carlson

Mark A. Carlson

Board of Governors of the Federal Reserve System

Stefania D'Amico

Federal Reserve Bank of Chicago

Cristina Fuentes-Albero

Federal Reserve Board

Bernd Schlusche

Board of Governors of the Federal Reserve System

Paul R. Wood

Government of the United States of America - World Payments and Economic Activity Section

Date Written: August, 2020

Abstract

This paper considers various ways of using balance sheet policy (BSP) to provide monetary policy stimulus, including the BSPs put in place by the Federal Reserve in the wake of the Global Financial Crisis, the choice between fixed-size and flow-based asset purchase programs, policies targeting interest rate levels rather than the quantity of asset purchases, and programs aimed at increasing more direct lending to households and firms. For each of these BSP options, we evaluate benefits and costs. We conclude by observing that BSPs’ relative effectiveness and thus optimal configuration will depend on the shocks affecting the economy. Consequently, it would be valuable for the Federal Reserve to keep a variety of tools at its disposal and employ the ones that best fit the situation that it faces.

Keywords: Balance sheet policy, Quantitative easing, Yield curve control, Credit easing, Central bank lending authority

JEL Classification: E43, E44, E58, G12, G21, G51

Suggested Citation

Carlson, Mark A. and D'Amico, Stefania and Fuentes-Albero, Cristina and Schlusche, Bernd and Wood, Paul R., Issues in the Use of the Balance Sheet Tool (August, 2020). FEDS Working Paper No. 2020-071, Available at SSRN: https://ssrn.com/abstract=3684909 or http://dx.doi.org/10.17016/FEDS.2020.071

Mark A. Carlson (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Stefania D'Amico

Federal Reserve Bank of Chicago ( email )

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Cristina Fuentes-Albero

Federal Reserve Board ( email )

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HOME PAGE: http://https://sites.google.com/site/cristinafuentesalbero/

Bernd Schlusche

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Paul R. Wood

Government of the United States of America - World Payments and Economic Activity Section ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-2865 (Phone)
202-736-5638 (Fax)

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