Central Bank Balance Sheets: Expansion and Reduction since 1900

In this paper we study the evolution of central banks? balance sheets in 12 advanced economies since 1900. We present a new dataset assembled from a wide array of historical sources. We find that balance sheet size in most developed countries has fluctuated within rather clearly defined bands relative to output. Historically, clusters of big expansions and contractions of balance sheets have been associated with periods of geopolitical or financial crisis. This explains the co-movement between the size of central bank balance sheets and public debt levels in the past century. Relative to the size of the financial sector, moreover, central bank balance sheets had shrunk dramatically in the three decades preceding the global financial crisis. By that yardstick, their recent expansion partly marks a return to earlier levels. Some of the recent increase could therefore prove to be permanent if the financial sector maintains permanently higher liquidity ratios.