Why Euro Area National Central Banks’ balance sheets matter

Portelli, Charmaine (2021) Why Euro Area National Central Banks’ balance sheets matter. PhD thesis, Birkbeck, University of London.

Abstract

The aim of this thesis is to contribute to the new field of monetary policy analysis –the analysis of central banks’ balance sheets. Within this field, this thesis conducts an analysis of the balance sheets of the national central banks operating within the Eurosystem, the literature on which so far has remained scarce. Through various investigations, this thesis argues that the Euro Area National Central Banks’ (EANCB) balance sheets do matter because they have the power to reveal facts that are obscured in the aggregate Eurosystem balance sheet. Focusing specifically on the Eurosystem, this thesis provides a new dataset -a breakdown of the balance sheets of all NCBs within the Eurosystem covering the 2006-2016 period. Based on this dataset, this thesis, firstly, compiles a gross balance sheet of the Eurosystem, which doesnot consolidate intra-Eurosystem transactions. This new measure, however, presents a paradox, which though remains unresolved, motivates an examination of the relationship between the EANCBs, the ECB and the Eurosystem, leading to the identification of interesting insights. This thesis establishes that the size of most of the EANCBs’ balance sheets are strongly correlated with the size of their share in the ECB capital and this relationship is even stronger when the gross balance sheet of the Eurosystem is used. Other evidence is found advocating the premise that the EANCBs more or less run on autopilot –in line with shares in the paid-up equity in the ECB. An econometric analysis is also carried out confirming this behaviour of the EANCBs.This thesis also conducts a detailed comparative analysis of developments in the composition of the EANCBs’ balance sheets. A new framework is proposed that treat the balance sheets exhaustively, including the intra-Eurosystem transactions between EANCBs –in contrastwith a framework already in the literature, Pattipeilohy (2016). Through this new framework, a comparative analysis is conducted on the typology of the EANCBs over the 2006-2016 period.

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