Abstract

We explore the role of central bank balance sheets in taming the effect of the global financial cycle since the late 19th century based on newly collected monthly data of 22 central banks from both developed and emerging market economies. Preliminary results show that the macroeconomic trilemma prevailed until the early 1970s. Floating exchange rates and/or capital controls worked as genuine shock absorbers, while central bank balance sheets partially mitigated the constraints of fixed exchange rates and capital account openness. Yet a more challenging situation has emerged with the 2nd financial globalization of the past 40 years, closer to a dilemma. Today, floating exchange rates are no longer sufficient to isolate the domestic money and asset markets from international shocks. Consequently, the shock absorbing role of central bank balance sheets has made a come-back since the 1990s and is now employed by fixing and floating countries alike. Central bank strategies have gone full circle.
Joint work with Eric Monnet and Matthias Morys.

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Localisation:
CEPS, University of Evry Val d'Essone, Room Malinvaud
Building Ile de France, Boulevard François Mitterrand, 
91025 Evry