Advancing the Monetary Policy Toolkit through Outright Transfers

IMF Working Papers, May 6, 2022

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In reserve currency issuing economies at the effective lower bound, outright transfers from the central bank to households are argued to be both more equitable and more effective in achieving monetary policy objectives than asset purchases or negative interest rates.
Concerns about central banks’ policy solvency and equity position can be addressed through:
- A careful assessment of a central bank's loss absorbing capacity.
- If needed, tiered reserve remuneration policies.
Key differences between outright transfers and a debt- or money-financed fiscal stimulus are pronounced in a currency union without a central fiscal capacity.
The paper discusses broader institutional, political, and legal considerations related to implementing outright transfers.

Consider outright transfers as an alternative monetary policy tool when economies face the effective lower bound and issue the reserve currency.
Assess central bank loss absorbing capacity explicitly before implementing transfers.
Use tiered reserve remuneration policies as a mechanism to manage central bank equity and solvency risks associated with transfers.
Pay special attention to the interaction between central bank transfers and fiscal frameworks in currency unions lacking a central fiscal authority.

Outright transfers vs. asset purchases:
- The paper asserts outright transfers are more effective and equitable than asset purchases in the specified context.
Outright transfers vs. negative interest rates:
- The paper asserts outright transfers are more effective and equitable than negative interest rates in the specified context.
Outright transfers vs. debt- or money-financed fiscal stimulus:
- The paper spells out key differences, which are particularly pronounced in a currency union without a central fiscal capacity.

Subject: Central bank balance sheet; Central banks; Financial statements; Fiscal policy; Monetary policy; Public debt; Public financial management (PFM); Unconventional monetary policies
Keywords: Central Bank Balance Sheet; Central Bank Equity; Central Bank Solvency; equity position; Financial statements; Global; Helicopter Money; Inequality; Monetary Policy; Outright Transfers; policy solvency; revaluation account; Unconventional monetary policies