A Central Bank's Optimal Balance Sheet Size?

16 Pages Posted: 11 Sep 2017

See all articles by Charles Goodhart

Charles Goodhart

London School of Economics & Political Science (LSE) - Financial Markets Group

Date Written: September 2017

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.

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

Goodhart, Charles A.E., A Central Bank's Optimal Balance Sheet Size? (September 2017). CEPR Discussion Paper No. DP12272. Available at SSRN: https://ssrn.com/abstract=3035266

Charles A.E. Goodhart (Contact Author)

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom
0207 955 7555 (Phone)
0207 242 1006 (Fax)

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