The Mystique Surrounding the Central Bank's Balance Sheet, Applied to the European Crisis

By Ricardo Reis. 2013

527 citations recorded by the source corpus.

In spite of the mystique behind a central bank's balance sheet, its resource constraint bounds the dividends it can distribute by the present value of seignorage, which is a modest share of GDP. Moreover, the statutes of the Federal Reserve or the ECB make it difficult for it to redistribute resources across regions. In a simple model of sovereign default, where multiple equilibria arise if debt repudiation lowers fiscal surpluses, the central bank may help to select one equilibrium. The central bank's main lever over fundamentals is to raise inflation, but otherwise the balance sheet gives it little leeway.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/5c2299620aa601d03865c3e98590477101f1df53

Citations in the corpus

• The "Mystery of the Printing Press" Monetary Policy and Self-fulfilling Debt Crises (2016, unknown): “Together with us, the same point has been recently emphasized by Hall and Reis (2015) and Reis (2013). and Sims 2014).”
• When Does a Central Bank's Balance Sheet Require Fiscal Support? (2015, unknown): “…to follow a rule for remittances, which embodies two principles: i) remittances cannot be negative, ii) whenever positive, remittances are such that the central bank capital (assets minus liabilities) remains constant in nominal terms over time (Hall and Reis (2013) use a similar rule), that is”
• Understanding Inflation as a Joint Monetary-Fiscal Phenomenon (2016, unknown): “In this equilibrium, one country accumulates the debt of another, an outcome whose political equilibrium Sims (1997) argues is unstable.”
• The Portuguese Slump and Crash and the Euro Crisis (2013, unknown): “Reis (2013) puts forward a simple model of this mechanism.”