Quasi-Fiscal Implications of Central Bank Crisis Interventions

IMF Working Papers, June 2, 2023

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Canonical URL: Quasi-Fiscal Implications of Central Bank Crisis Interventions

Authors: John Hooley, Ashraf Khan, Claney Lattie, Istvan Mak, Natalia Salazar, Amanda Sayegh, Peter Stella
Published: June 2, 2023
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798400241185.001

Authors: John Hooley, Ashraf Khan, Claney Lattie, Istvan Mak, Natalia Salazar, Amanda Sayegh, Peter Stella
Date: June 2, 2023
Core contribution: Develops a stylized balance sheet framework to identify ‘quasi-fiscal’ components of central bank crisis interventions and shows how sources of fiscal risk are created from both the new claims and how they are funded.
Data and methods: Combines central bank balance sheet data with survey evidence from intervention announcements; includes case study analysis.
Key intervention types examined: non-conventional lending to the financial and non-financial sectors; large-scale purchases of government securities.

Quasi-fiscal components: The framework isolates elements of central bank interventions that effectively transfer financial exposure to the public sector balance sheet.
Sources of fiscal risk: Risks arise from (a) the new claims created by interventions and (b) the funding modalities used by central banks to support those claims.
Evidence from Covid-19 interventions: Documentation of risks to the public sector balance sheet from central banks’ responses to the Covid-19 crisis, including liquidity-providing repo operations, support facilities, and asset purchase facilities.
Cross-country variation: Case study analysis indicates that management of fiscal risks from central bank crisis interventions varies greatly across countries.

Need for identification: Use of a stylized balance sheet framework to identify and quantify quasi-fiscal components is essential for transparency and fiscal risk assessment.
Risk management: Attention required to both the composition of new claims on central bank balance sheets and the funding strategies that can transfer risk to the public sector.
Coordination and disclosure: Implicitly suggests the value of improved coordination between monetary and fiscal authorities and clearer disclosure of intervention objectives and exposures.
Good practices: Case studies point to several identifiable good practices in managing fiscal risks from central bank crisis interventions (practices not enumerated in source summary).