This research project investigates the impact of the new style of central banking on the bank’s solvency, its ability to control inflation, and on economic stability.
Following financial crises, the central banks of advanced countries issue trillions of dollars of reserves, pay interest on those reserves, and hold a portfolio of risky assets including some government bonds with default risk. This project suggests new rules for the architecture of central banks, provides quantitative estimates of the financial strength of the main central banks and of how large are their resources, and investigates whether the central bank can prevent or induce self-fulfilling sovereign debt crises.
