The Central Bank Balance Sheet as a Policy Tool: Past, Present and Future

52 Pages Posted: 23 Dec 2020

See all articles by Andrew John Bailey

Andrew John Bailey

Bank of England; Bank of England - Prudential Regulation Authority

Jonathan Bridges

Bank of England

Richard Harrison

Bank of England - Monetary Analysis

Josh Jones

Bank of England

Aakash Mankodi

Bank of England

Date Written: December 18, 2020

Abstract

This paper focuses on what has been learned from the past decade of previously unconventional monetary policy measures and the emerging lessons from the effects of monetary policy responses to the Covid shock. The paper explores two observations from recent quantitative easing (QE) policies in detail. First, large QE programmes implemented quickly may be particularly effective in times of market dysfunction. Second, a rapid pace of asset purchases may also enhance QE effectiveness during these periods. These observations suggest a particular form of ‘state contingency’ for the impact of QE. The paper analyses the potential implications of such state contingency for the appropriate conduct of QE policies and the choice of policy instruments in more normal times. The paper also outlines some potential implications for future central bank balance sheet policies and the operational framework to support them.

Keywords: Monetary policy, financial stability, central bank balance sheet, quantitative easing, reserves

JEL Classification: E58, E52

Suggested Citation

Bailey, Andrew John and Bridges, Jonathan and Harrison, Richard and Jones, Josh and Mankodi, Aakash, The Central Bank Balance Sheet as a Policy Tool: Past, Present and Future (December 18, 2020). Bank of England Working Paper No. 899, Available at SSRN: https://ssrn.com/abstract=3753734 or http://dx.doi.org/10.2139/ssrn.3753734

Andrew John Bailey (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Bank of England - Prudential Regulation Authority

20 Moorgate
London, EC2R 6DA
United Kingdom

Jonathan Bridges

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Richard Harrison

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Josh Jones

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Aakash Mankodi

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
183
Abstract Views
621
rank
226,223
PlumX Metrics