Central Bank Balance Sheet and Real Business Cycles

Central Bank Balance Sheet and Real Business Cycles argues that a deeper comprehension of changes to the central bank balance sheet can lead to more effective policymaking. Any transaction engaged in by the central bank-issuing currency, conducting foreign exchange operations, investing its own funds, intervening to provide emergency liquidity assistance and carrying out monetary policy operations-influences its balance sheet. Despite this, many central banks throughout the world have largely ignored balance sheet movements, and have instead focused on implementing interest rates.

In this book, Mustapha Abiodun Akinkunmi highlights the challenges and controversies faced by central banks in the past and present when implementing policies, and analyzes the links between these policies, the central bank balance sheet, and the consequences to economies as a whole. He argues that the composition and evolution of the central bank balance sheet provides a valuable basis for understanding the needs of an economy, and is an important tool in developing strategies that would most effectively achieve policy goals. This book is an important resource for anyone interested in monetary policy or whose work is affected by the actions of the policies of central banks.

Auteur

Mustapha Abiodun Akinkunmi, PhD, is a Financial Economist and Technology Strategist. He has over twenty-five years of experience in estimation, planning and forecasting using statistical and econometrics methods, with particular expertise in risk, expected utility, discounting, binomial-tree valuation methods, financial econometrics models, monte carlo simulations, macroeconomic, and exchange rate modeling. He has done extensive software development on quantitative analysis of capital markets, revenue and payment gateway, predictive analytics, data science and credit risk management.

Dr. Akinkunmi has implemented change management programs and institutional development initiatives in both public and private sector organizations and has served in high profile positions as a Consultant, Financial Advisor, Project Manager and Business Strategist to AT&T (Bell Labs), Salomon Brothers, Goldman Sachs, Phibro Energy, First Boston (Credit Suisse First Boston), World Bank, Central Bank of Nigeria and Information Connectivity Solutions Limited. He is an internationally recognized author and leader in demand analysis, specializing in working with very large databases. Dr. Akinkunmi is the founder of Technology Solutions Incorporated (TSI) in New York, which focused on data science and software application development for clients including major financial services institutions. He has conducted teaching and applied research in areas that include analyses of expenditure patterns, inflation and exchange rate modeling for Manhattan College, Fordham University and American University, Yola, Nigeria.

Contenu

Chapter 1: Global Genesis of the Central Bank 1

1.1 Origin of the Central Bank 1

1.2 Roles of the Central Bank 1

Questions 3

Chapter 2: Relevance of the Central Bank Balance Sheet 5

2.1 Understanding Relevance of Central Bank Balance Sheet in Functions of

Economy 5

2.1.1 Similarities and Differences between a Company's Balance Sheet

and a Central Bank Balance Sheet 5

2.2 Trajectory Relevance of the Central Bank Balance Sheet 8

2.3 Externality of the Central Bank Balance Sheet Size 12

Questions 13

Chapter 3: Components of Central Bank Balance Sheets 15

3.1 Factors Influence the Reporting Frequency of Central Bank Balance

Sheets 17

3.2 Components of Central Bank Assets and their Composition

Analysis 18

3.2.1 Foreign Assets 18

3.3 Components of Central Bank Liabilities and their Composition

Analysis 20

3.3.1 Banknotes 21

3.3.2 Commercial Bank Reserves 23

3.3.3 Capital 23

Questions 25

Chapter 4: Analytical Framework of Central Bank Balance Sheets 27

4.1 Structure of Central Bank Balance Sheets 27

4.2 Balance Sheet Indicators 28

4.2.1 Computation of Indicators 28

4.2.2 Significance of these Indicators 29

4.2.3 Underlying Assumptions of Four Indicators 29

4.3 Determinants of Central Bank Balance Sheet Composition 30

4.4 Classification of Central Bank Balance Sheet Components 31

4.5 Theoretical Landscape: Quantity Theory of Money versus Quality Theory

of Money 32

4.5.1 Quantity Theory of Money 32

4.5.2 Quality Theory of Money 34

Questions 39

Chapter 5: Evolution of Central Bank Balance Sheets and Their Heterogeneous

Dimensions 41

5.1 What Makes Central Bank Balance Sheets Special? 41

5.2 Historic Uses of Central Bank Balance Sheets 43

5.3 Composition of Central Bank Balance Sheet Liabilities 44

5.3.1 Central Bank Liabilities in Normal Times 45

5.3.2 Snapshot of Selected Economies' Performance before the

2007-008 Crisis 46

5.3.3 Country-by-Country Snapshots of Economic Structure Since

2005 47

5.3.4 A Look at the Balance Sheets: 2005 and 2006 56

5.3.5 Snapshot of Selected Economies' Performance during the

2007-008 Crisis 65

5.3.6 Snapshot of Selected Economies' Performance Today 74

5.3.7 Central Bank Liabilities Today 78

Conclusion 86

Questions 86

Chapter 6: Composition of Central Bank Balance Sheet Assets 87

6.1 Central Bank Assets in Normal Times 87

6.1.1 Central Bank Assets of Emerging Economies 95

6.2 Central Bank Assets During the 2007-2008 Crisis 96

6.2.1 Central Bank Assets of Developing and Emerging Economies

during the 2007-2008 Crisis 104

6.3 Central Bank Assets Today 104

6.3.1 Central Bank Assets of Emerging Economies Today 112

6.4 Asset-Side Composition and Economic Growth Nexus 115

6.4.1 Asset-Growth Nexus before the 2007-2008 Crisis 115

6.4.2 Asset-Growth Nexus during the 2007-2008 Crisis 116

6.4.3 Asset-Growth Nexus after the 2007-2008 Crisis 116

6.5 The Evolution of Central Bank Balance Sheets in the Future 117

Questions 119

Chapter 7: Financial Ratios of the Central Bank Balance Sheet 121

7.1 International Strength 121

7.2 External Strength Ratio 122

7.3 External Impact Ratio 123

7.4 Liquidity Ratios I, II, and III 123

7.4.1 Liquidity Ratio I 124

7.4.2 Liquidity Ratio II 124

7.4.3 Liquidity Ratio III 124

7.5 Equity Ratio 125

Questions 126

Chapter 8: Central Bank Operations 127

8.1 Types of Central Bank Operations 127

8.1.1 Supply Liquidity 127

8.1.2 Absorb Excess Liquidity 127

8.1.3 Asset Securities 128

8.1.4 Off Balance Swap 131

8.2 Central Bank Policy Instruments 131

8.2.1 Open Market Operations 131

8.2.2 Reserve Requirements 132

8.2.3 Discount Rate 134

8.2.4 Money Market Investor Funding Facility 135

8.2.5 Term Auction Facility 136

8.2.6 Commercial Paper Funding Facility 137

8.2.7 Primary Dealer Credit Facility 140

8.2.8 Recap of Policy Instruments 141

Questions 141

Chapter 9: Real Business Cycles 143

9.1 The RBC Model 143

9.1.1 Features of RBC Models 144

9.1.2 Basic Economic Factors 145

9.…