July 2024: Fiscal consequences of central bank losses

VoxEU Column
by Stephen Cecchetti & Jens Hilscher

Central banks engaged in large-scale asset purchase programmes during and after the global financial crisis as well as during the COVID-18 pandemic, significantly increasing the size of their balance sheets. This column develops a framework for understanding the medium- and long-run implications of the losses arising from these large-scale asset purchases, and argues that they are best viewed as a form of fiscal policy. Compared to the potential gains of avoiding more severe recessions and earlier benefits from holding high-yielding securities funded by low-interest reserves, losses seem relatively small and have different effects depending on accounting treatments and indemnification policies.

VoxEU Column: Fiscal consequences of central bank losses