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Funders-of-Last-Resort: Legal Issues Involved in Using Central Bank Balance Sheets to Bolster Economic Growth

Author

Listed:
  • Michael, Bryane
  • Dalko, Viktoria
Abstract
What role does unconventional monetary policy - and particularly unconventional policies like private asset purchases under a quantitative easing or lender of last resort scheme - play in influencing economic growth directly? Emerging and developing countries' central banks could contribute to GDP growth by following the example of jurisdiction like the US, UK and EU, by buying private sector and specific obligation public sector assets. Such a scheme would like most benefit jurisdictions like Greece, Bulgaria, Ukraine and others. Unsurprisingly, we find a weak relationship between these purchases and investment world-wide for the last 10 years. We also find the existence of a "sloth effect" - a pattern in the data whereby more central bank asset purchases actually coincides with lower investment. We estimate the gains to increasing central bank balance sheet sizes with these assets. We also show how statutory mandate for nominal GDP targeting set the best legal foundations for such asset purchases. We finally describe an internal audit engagement which would collect the specific data needed to verify the results in this study.

Suggested Citation

  • Michael, Bryane & Dalko, Viktoria, 2017. "Funders-of-Last-Resort: Legal Issues Involved in Using Central Bank Balance Sheets to Bolster Economic Growth," EconStor Preprints 169113, ZBW - Leibniz Information Centre for Economics.
  • Handle: RePEc:zbw:esprep:169113
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    File URL: https://www.econstor.eu/bitstream/10419/169113/1/Central%20Bank%20Paper.pdf
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    More about this item

    Keywords

    unconventional monetary policy; funder of last resort; nominal GDP targeting; central bank balance sheet; sloth effect; internal audit;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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