The central bank as a hedge fund: The new economic policy of the central bank

Abstract

This article examines the notable recent increase in central banks’ balance sheets. In both the developed and developing world, the amount of a diverse array of financial assets now held by central banks has created a situation in which these institutions now closely resemble hedge funds. This development has clear impla-cations on monetary policy and questions the very “independence” of central banks. In addition to examining the recent evolution of central banks’ balance sheets, this article offers several proposals for central banks to extract themselves from their current situation.