The central bank balance sheet as a policy tool: past, present and future

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 18 December 2020

Staff Working Paper No. 899

By Andrew Bailey, Jonathan Bridges, Richard Harrison, Josh Jones and Aakash Mankodi

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.

The central bank balance sheet as a policy tool: past, present and future

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