This paper argues that in reserve currency issuing economies at the effective lower bound, outright transfers from the central bank to households are both more equitable and more effective in achieving monetary policy objectives than asset purchases or negative interest rates. It shows that concerns pertaining to central banks’ policy solvency and equity position can be addressed through a careful assessment of a central bank's loss absorbing capacity and, if need be, tiered reserve remuneration policies. It also spells out key differences to a debt or money financed fiscal stimulus, which are particularly pronounced in a currency union without a central fiscal capacity. The paper concludes by discussing broader institutional, political, and legal considerations.
achieving monetary policy objectives. In an economy at the ELB with spare capacity, outrighttransfers (OT) from the central bank to private households would allow for a much more direct monetary policy transmission on prices and the real economy without creating undesirable financial stability risks such as asset price inflation or unsustainable credit growth. Moreover, in contrast to quantitative easing (QE), 1 OT would not contribute to greater wealth inequality and reduce, rather than increase, risks of fiscal dominance. It would also allow for a faster and less
unaffected. Changes in the reported net worth of banks resulting from a downward adjustment in the valuation of their existing financial assets are, in reality, transfers in favor of other entities. These can be outrighttransfer or delayed recognition of past transfers, or a combination of the two.
Outrighttransfers to other economic entities
In a range of scenarios, bookings of “losses” by banks on their financial assets are, in real economic terms, outrighttransfers of wealth from those banks to other economic entities. This is, in particular, the case whenever
The paper explores a different, supplementary way to assess and manage a particular type of banking crises, those arising from a rise of nonperforming loans to the corporate sector. It relies on a “national wealth approach,” focusing on the distribution of net wealth among economic sectors and its interaction with developments in the banking system. It identifies avenues for policy response optimization, based on an integrated macrofinancial analytical framework, both for the prevention and the resolution of these types of economic events.
Mr. Mark P. Taylor, Mr. Peter Isard, Mr. Morris Goldstein, and Mr. Paul R Masson
-i-Martin and Sachs (1992) show that in the United States the federal tax and transfer system serves as an important shock absorber by increasing federal tax payments from, and lowering transfer payments to, those regions that are prospering relative to the national average, and conversely for those that are relatively depressed. The federal tax system and outrighttransfers to states are estimated to cushion over one third of the effects of region-specific shocks on disposable income. Sala-i-Martin and Sachs (1992) conclude that the success of EMU requires a system of