Monetary policy instruments, from interest rates to the Central Bank balance sheet

Authors

  • M. Carmen Blanco-Arana Universidad de Málaga. Facultad de Ciencias Económicas y Empresariales. Departamento de Economía Aplicada (Hacienda Pública, Política Económica y Economía Política). https://orcid.org/0000-0002-8241-6573
  • Gumersindo Ruiz Euroval y Universidad de Málaga. Facultad de Ciencias Económicas y Empresariales. Departamento de Economía Aplicada (Hacienda Pública, Política Económica y Economía Política).

DOI:

https://doi.org/10.7203/IREP.6.2.30127

Abstract

This paper is based on an article published by Ruiz (2017) and expanded in Ruiz, De la Torre and Moral (2020), which highlights the links between monetary and fiscal policy, and the purchase of public debt and other assets in the market by central banks, with a purpose other than regulating short-term liquidity to the economy in response to the demand for liquidity. The maintenance of assets through debt purchases on the central bank's balance sheet gives rise to a peculiar fact, because although central banks claim that these operations are carried out for monetary policy purposes, there are two different types of operations: some with debt bonds that are actually used for what we could consider conventional monetary liquidity policy; and other non-conventional operations, as in the case of the Federal Reserve with mortgage-backed securities (MBS), and in the case of the European Central Bank (ECB), with the debt of the Eurozone countries. We try to differentiate in this article the usual instrument of providing or withdrawing liquidity from the market, of the use by central banks of their balance sheets as a way of rescuing public and private assets in difficulty, which constitutes a significant fact in the field of public policy and economic policy. This analysis is completed with the empirical analysis of the traditional role of the interest rate instrument as defined in a Taylor-type model, in this balance sheet context, and the search for a correlation between the variation of the central bank's balance sheet and the interest rate of the public debt.

Downloads

Download data is not yet available.

References

Altavilla, C., Boucina, M., Pagano, M. y Polo, A. (2023): Climate Risk, Bank Lending and Monetary Policy, Finance Working Papers 936.

Banco Central Europeo, BCE, (2024): https://data.ecb.europa.eu/ (fecha de acceso noviembre, 2024)

Brotons, L., Escolano, C. y Ruiz, G. (2024): Nuevos retos de los bancos centrales: el caso del BCE ante los ODS, Revista LATAM, 1.

Cochran, P., Petrasek, L., Savaray, Z., Tian, M. y Wu, E. (2024): Assessment of Dealer Capacity to Intermediate in Treasury and Agency MBS Markets, FEDS Notes, October 22.

Comisión Europea (2024): Base de datos AMECO. https://economy-finance.ec.europa.eu/economic-research-and-databases/economic-databases/ameco-database_en#database (fecha de acceso noviembre, 2024).

D´Amico S., Guillet, M., Suchbofer, S. y Seida, T. (2022): Open and Ended Treasury Purchase: From Market Functioning to Financial Easing, Federal Reserve Bank of Chicago, Working Paper, 26 March.

European Central Bank, ECB, (2020): Guide on Climate-Related and Environment Risk. Supervisory Expectations Relating to Risk, Management and Disclosure, ECB Supervisory Publications.

Knotek, E., Verbrugge, R., Garciga, Ch., Treanos, C., Zaman, S. (2016): Federal Funds Rate Based on Seven Simple Monetary Policy Rules, Federal Reserve Bank of Cleveland, Economic Commentary, 2016-7.

Reserva Federal (2024). Base de datos. https://www.federalreserve.gov/data.htm (fecha de acceso noviembre, 2024).

Ruiz, G. (2008): Un mundo en crisis, auge y caída de la liquidez y el crédito, Cámara de Comercio, Málaga.

Ruiz, G. (2017): El policy mix monetario y fiscal revisitado. En A. Sánchez y T. Carpi, Política Económica, Tirant lo Blanch.

Ruiz, G., de la Torre, B. y Moral, V. (2020): La nueva política monetaria e implicaciones de política fiscal, International, Review of Economic Policy, 1(1):48-71.

Ruiz, G., de la Torre, B., Moral, V. (2014): Why Interest Rates Will Remain Very Low for Years. An Exercise Based on the Taylor Rule, Arethuse Scientific Journal of Economics and Business Management, vol.1.

Ruiz, G., Ruiz M. (2007): La metamorfosis actual del sistema financiero, Cámara de Comercio, Málaga.

Schnabel, I. (2023): Quantitative Tightening: Rational and Market Impact, Monetary Market Contract Group, ECB, 2 March.

Taylor (1993) Taylor, J. B. (1993): Discretion versus policy rules in practice, Carnegie-Rochester Conference Series on Public Policy, 39: 195-214. North-Holland.

Taylor (1999) Taylor, J.B. (1999): A Historical Analysis of Monetary Policy Rules. In: Taylor, J.B., Ed., Monetary Policy Rules, University of Chicago Press, Chicago, 319-348.

Tesoro Público (2024): Estadísticas. https://www.tesoro.es/deuda-publica/estadísticas-mensuales (fecha de acceso noviembre, 2024).

Välimäki, T. (2023), What is the Optimal Size of Central Bank Balance Sheet? OMFIF Seminar, The New Era of Central Bank Policy and Operations, Frankfurt, 19 March.

Wessel, D. (2024): Could the Fed Replace the Dot Plot with Scenarios (2024): The Brookings Institution Comment Paper.

Downloads

Published

2024-12-26

How to Cite

Blanco-Arana, M. C., & Ruiz, G. (2024). Monetary policy instruments, from interest rates to the Central Bank balance sheet. International Review of Economic Policy-Revista Internacional De Política Económica, 6(2), 1–23. https://doi.org/10.7203/IREP.6.2.30127
Metrics
Views/Downloads
  • Abstract
    18
  • PDF (Español)
    5

Issue

Vol. 6 No. 2 (2024)

Section

Articles

License

This work is licensed under a https://creativecommons.org/licenses/by-nc/4.0/.

Copyright is the right exercised by the creator over his/her literary and artistic work. The owner of the copyright is, as a rule, the person who creates the work, which is to say the author. In Copyright Law, the author is considered to be “the natural person who creates a literary, artistic or scientific piece of work”.  Although in principle it is only natural or physical persons who may be considered to be authors, the law foresaw certain cases in which legal persons could also benefit from these rights.

Authorship is irrevocable; it may not be transmitted either inter vivos or in the form of a testamentary trust; it does not disappear with the passage of time nor is it public domain; it is not subject to the statute of limitations.

Copyright Law has a dual nature; it covers moral rights (paternity, integrity, dissemination…), and property rights (reproduction, distribution, public communication, transformation):

Moral rights (article 14 of the Spanish Copyright Law). These refer to acknowledgement of authorship. They are irrevocable and inalienable and correspond to the right to:

  •   Decide whether his/her work is to be disseminated and how.
  •   Acknowledge authorship of the work.
  •   Demand respect for the integrity of the work.
  •   Modify the work while being respectful of the rights acquired.
  •   Withdraw the work from sale, without prejudice to compensation for damages to the owners of the right of use.
  •   Access the single,unique copy of the work that is held by a third party

Property rights (articles 18 to 25 of the Spanish Copyright Law). They refer to the four types of right of use. They allow the owner of the work to obtain financial compensation for the third-party use of his/her work:

  • Reproduction: obtaining of copies of all or part of the work.
  • Distribution: the public availability of the work through its sale, rental, loan or by any other means.
  • Public Communication: action through which a group of people may have access to the work.
  • Transformation: the translation, adaptation and any other modification of the work, leading, or not, to new work derived from it.

Metrics