Liquidity dependence may hamper QE exit

Expanding reserves may prove perilous for financial stability, with maximum danger during QT, writes Viral Acharya

dollar tap

At the Federal Reserve Bank of Kansas City’s Jackson Hole Economic Symposium in late August, I offered a perspective on ‘reassessing constraints on policy’, the theme of the second day at the conference. Based on joint work with Rahul Chauhan, Raghuram Rajan and Sascha Steffen, I spoke on the issue of quantitative easing and tightening using the lens of our article, Liquidity dependence: why shrinking central bank balance sheets is an uphill task.

Central bank reserves are the most liquid

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