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A Central Bank’s optimal balance sheet size?

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  • Goodhart, Charles

Abstract

Unlike other facets of monetary policy renormalisation, there has been little discussion yet of what principles should determine the optimum size of a Central Bank's balance sheet, the end-point to which on-going portfolio reductions should approach. In this note I start by addressing the arguments of those who would leave this balance sheet very large, much as now; and then continue with the counter-arguments, also stressing the nature of the relationships between monetary and fiscal policies, and between the Central Bank and the Treasury's Debt Management Office.

Suggested Citation

  • Goodhart, Charles, 2017. "A Central Bank’s optimal balance sheet size?," LSE Research Online Documents on Economics 84205, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:84205
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    File URL: http://eprints.lse.ac.uk/84205/
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    References listed on IDEAS

    as
    1. Reis, Ricardo, 2016. "Funding quantitative easing to target inflation," LSE Research Online Documents on Economics 67883, London School of Economics and Political Science, LSE Library.
    2. Allen, William A., 2017. "Quantitative Easing and the Independence of the Bank of England," National Institute Economic Review, National Institute of Economic and Social Research, vol. 241, pages 65-69, August.
    3. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
    4. Allen, William A., 2017. "Quantitative Easing and the Independence of the Bank of England," National Institute Economic Review, National Institute of Economic and Social Research, vol. 241, pages 65-69, August.
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    Cited by:

    1. Egemen Eren & Timothy Jackson & Giovanni Lombardo, 2024. "The macroprudential role of central bank balance sheets," Working Papers 202408, University of Liverpool, Department of Economics.
    2. Egemen Eren & Timothy Jackson & Giovanni Lombardo, 2024. "The macroprudential role of central bank balance sheets," BIS Working Papers 1173, Bank for International Settlements.

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    More about this item

    Keywords

    Central Bank balance sheet; monetary policy renormalisation; debt management; interest rate risk; auction risk;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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