Reserach On Central Bank Balance Sheet Policies

During the2007-2009Global Financial Crisis, central bank balance sheet policy prevailed. Led by the Federal Reserve and the European Central Bank, many major central banks applied this policy toolkit for the first time by adjusting the categories and size of their assets. By emphasizing the cross-country differences, this thesis casts light on different conditions and reasons to apply such policies, their influences and effectiveness of the transmission channels, as well as the determination of the optimal size of credit easing. Meanwhile, based on the central bank balance sheet policies of PBC, this thesis also initiated a way to transform the large possession of foreign exchange assets of PBC, a central bank balance sheet policy in Chinese way.Through the empirical researches on Federal Reserve and the European Central Bank, the result shows great differences in the frequencies to apply central bank balance sheet policy toolkits, due to the mutual influences between the interest rate expansion and central bank balance sheet policy easing. On the U.S. side, the two policies stimulate each other, while the opposite on the Euro zone side. Besides, the transmission channels between the two policy toolkits are different. For the U.S., the portfolio rebalancing channel is more effective, and so is the signaling channel in both short and medium run. While for the Euro zone, the signaling effect is strong in the short run, but reversed in the long run. Moreover, there is inflation in both areas due to the central bank balance sheet policy easing in the short run, but not in the long run. Finally, the toolkit is more effective in financial markets then in the real economy.From the perspective of the modeling and simulation, the result shows that there is an inflection point when the leverage ratio of the healthy banks influences the size of the credit easing policy of the central bank. However, for the problem banks, this influence is monotonous, and the relationship depends on the leverage ratio of the healthy banks. Meanwhile, when there are fewer banks to be recapitalized by the central bank, the larger the leverage ratio of the problem bank is, the smaller the size of the credit easing policy should be. Moreover, the financial support to the central bank from the Treasury is determined by the factors of non-risk yield, risk premium and the leverage ratio all both kinds of banks.The central bank balance sheet policy of PBC relies on the short-term changes in size and categories of the debt. In order to create a balance sheet policy toolkit for PBC, this thesis initiates a way to transform the foreign exchange reserves into foreign direct investment to China through investing on the treasury bonds and risky assets in the U.S.,in order to increase the domestic funding of the real economy. Only in certain condition will the foreign exchange reserves of the PBC transformed into FDI effectively. And the restriction is determined by the relationship among various macro economic variables.