Discussion paper

DP12272 A Central Bank’s Optimal Balance Sheet Size?

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.


Goodhart, C (2017), ‘DP12272 A Central Bank’s Optimal Balance Sheet Size?‘, CEPR Discussion Paper No. 12272. CEPR Press, Paris & London. https://cepr.org/publications/dp12272