"Central Bank Balance Sheets: Expansion and Reduction since 1900" critical analysis. Purpose of article The main purpose of the article is to analyse the evolution of central bank balance sheets using twelve different economies since 1900, with focus put on the 20th and 21st century, to understand large balance sheet implications and their impact on future central bank balance sheet size and economic policies. The article places a certain level of prevalence on policy implications via a reflection of the relationship between monetary and fiscal policies, which revealed that large scale purchases of government bonds can cause bond yield reduction which decreases government debt service cost and interest rates. Whilst noting ..... Moreover, the article specified that there was little to no policy implication coming from large balance sheet ...... Summary of key arguments The first key argument of this article is that the contractions and expansions of the balance sheet are relative to their output, GDP and not nominal positions. It is because of this that . The contractions were the result of WW1 and WW2 as fluctuations were 10-20% of GDP during geopolitical crises. Similarly, post WW2 climate review showed federal reserve's balance sheet size decreased ...... The article further highlighted the co-movement between public debt and balance sheet size. .... The second key argument of the article is regarding the link between balance sheet size growth and inflation, as the authors stated that it has diminished considerably since 1980, using Sargent and Surico (2011) ...... Leading to the implication that balance sheet sizes are not a problem as long as the public does not question the central banks' ability to deal with inflationary pressures. This view weakens the corelation ..... Major conclusions 1
The key conclusion of the main argument is that geopolitical and financial crises affected the balance sheet size fluctuations relative to the GDP and output and not nominal positions. Whereby ........ The authors expect increases to be long-lasting if the financial sector retains high liquidity ratios. The conclusion of the final argument is that the authors saw a low correlation between inflation and bank balance sheet size ..... Yet, noting that for this to be true central banks would need to maintain their role in keeping price stability intact. Critical reflection on article The strength of the article is in its acknowledgement of the role that GDP, output and nominal positions take when evaluating contractions and expansions since 1900s, which show that the balance sheet size has decreased significantly enough to conceal the large expansion post 2007 crisis. Academics such as Brunnermeier and Schnabel (2015) support this view ...... Furthermore, Logan (2019) substantiates the second viewpoint of the expansion post 2007 crisis, . Yet, as per McCord (2015) the number of independent commercial banks decreased by 14% during the period of 2007 to 2013. As the paper was written in 2014, it would have had to rely on the same data. Therefore, a question arises, how can the same data produce varied viewpoints? The