5 thoughts on “Mr. Guzmán’s impossible plan”

  1. I have a question about your toy model of a central bank balance sheet:
    NW = net worth = equity?
    K = some measure of capital? I can not understand what it means.
    And why are b(t-1) = 0; Argentina is in default, but b is still worth something.


    1. Yes and yes. B is not worth anything; even if they get a coupon on those bonds it is returned to the government as profit transfer. Recall they were written down last year but their “value” restored later. In flow terms they are irrelevant for central bank balance sheet sustainability purposes.


      1. Thank you very much for your quick answer.
        Sorry for asking again. Could you please elaborate more on the term “Some measure of capital”.
        By the way, I am a big fan of your blog 🙂


      2. Sure. It’s just that to build an accurate model of CB balance sheet sustainability you need some assets (beyond those associated with money creation) that earn a coupon that can support the operations of the central bank. This is also a measure of initial central bank capital (ie. when all other initial assets and liabilities net to zero.) So I introduce the term K as a catch all for initial capital. This then allows to ask what scale of recap is needed to generate a sustainable steady state balance sheet given monetary income, real depreciation etc.


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