It is a great pleasure to be here at this event, hosted by the LSE's Financial Markets Group in honour of Charles Goodhart.
This evening, I am going to talk about central bank balance sheets and in particular the Bank of England's balance sheet. An esoteric topic perhaps, but an important one, now more than ever. And it is a topic on which Charles has written extensively.
Charles worked at the Bank for nearly two decades, of course, before his distinguished career as a professor here at the London School of Economics. His article "The importance of money", published in the Bank's Quarterly Bulletin in 1970 and available on the Bank of England's website, was a milestone in the study of the predictability of money demand. At the time this was an important issue in debates over monetary control mechanisms and the relative merits of monetary 'rules' and policy 'discretion', a debate he masterfully summarised in his 1975 book on "Money, Information and Uncertainty".
In this and later work, Charles brought his deep understanding of the nature of financial markets, of banking and of monetary assets to bear, the historical perspective always present. In his 1988 book "On the Evolution of Central Banks" he discussed "how the role and functions of Central Banks have evolved naturally over time, and play a necessary part within the banking system". Fast forward two more decades – across a long list of significant contributions covering the full spectrum of monetary economics – it was with more foresight than most that he turned to "A Central Bank's Optimal Balance Sheet Size?" in 2017, discussing principles for 'monetary policy renormalisation' after a decade of central bank balance sheet expansion.
I should not fail to mention that Charles was a policymaker too. He served as an inaugural external member of the Monetary Policy Committee, from June 1997 to May 2000. When he left Bank Rate was at 6.0%. It is tempting to bring up r* at this point. But I will resist and conclude instead that the Bank of England's balance sheet seems a fitting topic for a lecture in Charles's honour this evening.
