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Qualitative Easing in Support of a Tumbling Financial System: A Recent Look at the Eurosystem´s Recent Balance Sheet Policies

Bagus, Philipp and Howden, David (2009): Qualitative Easing in Support of a Tumbling Financial System: A Recent Look at the Eurosystem´s Recent Balance Sheet Policies. Published in: Economic Affairs , Vol. 4, No. 29 (2009): pp. 60-65.

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Abstract

Recently, attention has been drawn to compositional changes in the Federal Reserve System's asset holdings. While much attention has been drawn to the deterioration of the balance sheet of the Fed in the face of the current crisis, an analysis of the balance sheet policies of the Eurosystem is still missing. In this article we fill this gap by analysing the Eurosystem's balance sheet during the recent sub-prime crisis. Specifically, the share of the position “Euro area claims in foreign currency” of foreign currency claims containing currency swaps climbed from 2.2 % to 7.8 %, while securities held (i.e., marketable securities, which may potentially be used for monetary policy operations) almost doubled from 7.9 % to 15.7 %. Simultaneously, the share of gold reserves fell from 15.3 % to 11.9 %. The calculation of certain balance sheet ratios supports the assessment that a significant decrease in the quality of money has occurred.

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