A Central Bank's Optimal Balance Sheet Size?
16 Pages Posted: 11 Sep 2017
Date Written: September 2017
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.
Keywords: auction risk, Central Bank Balance Sheet, Debt Management, interest rate risk, liquidity, Monetary Policy Renormalisation, QE
JEL Classification: E50, E52, E63, H63
Suggested Citation: Suggested Citation