Presentation "Monetary and fiscal policies at a crossroads: New Normal or New Path?" by Claudio Borio on Latvijas Banka's conference, 20.09.2021

1. Monetary and fiscal policies at a
crossroads: New Normal or New Path?
Claudio Borio*
Head of the Monetary and Economic Department
*The views expressed are those of the author and not necessarily those of the BIS.
Latvijas Banka Economic Conference 2021
20 September 2021, virtual

2. 2
Central banks’ larger “fiscal” footprints
1 Cumulative changes in total balance sheet size since 1 January 2008, as a percentage of four-quarter moving sum of quarterly GDP. 2 Holdings of total debt
securities issued by the central government as percentage of the total outstanding. For the BoE, holdings of gilts as a percentage of total outstanding gilts. For the ECB,
securities held under the Pandemic Emergency Purchase Program (only public sector securities), Public Sector Purchase Programme (only sovereign bonds) and the
Securities Market Programme as a share of total debt securities issued by the central government. 3 For ECB, as of July 2021; for BoJ and Fed, August 2021 and for BoE,
Q1 2021.
Sources: ECB; Bank of England; Bank of Japan; Board of Governors of the Federal Reserve System; United Kingdom Debt Management Office; Datastream; national data;
BIS calculations.
Central bank’s balance sheet size1 Central bank holdings of government debt2

3. 3
Rising debt but debt service cost at historical trough: no reason to worry?
1 Sample of 19 AEs and five EMEs. 2 General government debt at nominal value, latest available quarter for 2020. 3 Debt/GDP multiplied by the simple average of
short- and long-term interest rates. 4 Median debt service if nominal interest rates had stayed at the 1995 level.
Sources: O Jordà, M Schularick, and A Taylor, “Macrofinancial history and the new business cycle facts”, in M Eichenbaum and J Parker (eds), NBER Macroeconomics
Annual 2016, vol 31, 2016; S A Abbas, N Belhocine, A El-Ganainy, and M Horton, “A historical public debt database”, IMF Working Papers, no 10/245, 2010; European
Commission, AMECO database; IMF, World Economic Outlook; OECD, Economic Outlook; Bloomberg; Datastream; Global Financial Data; Oxford Economics; BIS total
credit statistics; BIS calculations.
Government debt1, 2 Debt service cost1, 3

4. 4
How long-term government debt may in fact be overnight
Government Central Bank Consolidated
Assets Liabilities Assets Liabilities Assets Liabilities
↑ Long-term
assets
Short-term
bills
↑ Long-term
bonds
↑ Overnight
debt
↑ Long-term
assets
Short-term
bills
↑ Long-term
bonds
↑ Overnight
debt
The figure shows what happens to the consolidated government-cum-central bank balance sheet if the government issues long-term debt
(green rectangle) purchased by the central bank and financed with interest-bearing bank reserves (de facto overnight debt – orange
rectangle).
Source: Borio, C and P Disyatat (2021): “Monetary and fiscal policy: privileged powers, entwined responsibilities”, SUERF Policy Note,
no 238, May.