Central Bank Balance Sheets as Policy Tools

In the face of the recent financial crisis, central banks have varied the size and structure of their balance sheets. Such actions attempt to exploit additional instruments of central bank policy that go beyond the traditional monetary policy instrument (ie control over the shortterm interest rate). The objectives of these measures have varied across countries: offering additional stimulus to the economy in the face of a lower bound on the level of short-term interest rates; supporting market functioning by expanding central bank intermediation; and managing cross-border capital flows in an environment where the domestic financial system lacks the ability to intermediate such large and/or foreign-currency-denominated financial flows. This paper reviews experience with such measures, in particular drawing lessons from the European experience that have potential relevance for Asian central banks.Full publication: "http://ssrn.com/abstract=2166373" Are Central Bank Balance Sheets in Asia Too Large?