Understanding the central bank balance sheet – A handbook..

Garreth Rule of BoE has a nice detailed article on this.

The central bank’s balance sheet plays a critical role in the functioning of the economy. The main liabilities of the central bank (banknotes and commercial bank reserves) form the ultimate means of settlement for all transactions in the economy. Despite this critical role the central bank’s balance sheet remains an arcane concept to many observers. This handbook provides a useful framework for understanding the necessary details.

The handbook has excellent graphs and pictures to explain how central banks make changes in balance sheets.

This is another unfortunate development in eco teaching. There should be far more focus on reading balance sheets than just reading papers. Mon policy teaching barely covers balance sheets whereas they are central to understanding central banks. By looking at the balance sheet, one can figure out most of central bank operations without getting into complex math.

Really useful stuff..

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