Prague Economic Papers 2010, 19(3):195-217 | DOI: 10.18267/j.pep.372

A Cardiograph of the Dollar's Quality: Qualitative Easing and the Federal Reserve Balance Sheet During the Subprime Crisis

Philipp Bagus1, Markus H. Schiml2
1 Unversity Rey Juan Carlos, 28032 Madrid, Spain (philipp.bagus@urjc.es).
2 University of Bayreuth, 95440 Bayreuth, Germany.

In this article we argue that the balance sheet of a central bank contains valuable information for the quality of a currency. As an illustration we analyze the balance sheet of the Federal Reserve System (FED) during the subprime crisis between June 2007 and December 2008. Until September 2008 the balance sheet of the FED did not expand strongly. However, the structure of the FED assets varied pronouncedly. Starting in September 2008 the balance sheet expanded dramatically. The calculation of certain balance sheet ratios supports the assessment of an important decrease of the quality of the currency. Our analysis shows that the analysis of central bank balance sheet policies should not rely solely on quantitative issues but rather include qualitative issues.

Keywords: central banks´ balance sheet, quality of money, qualitative easing, balance sheet analysis, subprime crisis
JEL classification: E31, E52, E58, E59, M40

Published: January 1, 2010  Show citation

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Bagus, P., & Schiml, M.H. (2010). A Cardiograph of the Dollar's Quality: Qualitative Easing and the Federal Reserve Balance Sheet During the Subprime Crisis. Prague Economic Papers, 19(3), 195-217. doi: 10.18267/j.pep.372
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