THANKS BEN:

Niall Ferguson, the Harvard University historian, has a message for those who fret about the size of the Federal Reserve's balance sheet: Don't worry too much.

In a paper presented at the European Central Bank's inaugural forum in Sintra, outside of Lisbon, Mr. Ferguson and two co-authors (Moritz Schularick, a University of Bonn economic historian, and Andreas Schaab, a Harvard undergrad) offer a few intriguing conclusions from newly assembled data tracing the history of central bank balance-sheet expansions (23) and contractions (17) of 12 advanced economies since 1900:

-The size of central bank balance sheets has fluctuated between 10% and 20% of gross domestic product most of the time - except during World War II and the recent crisis, which "has eclipsed all other historical precedents." The motivations for the expansions differ over time.

-Central bank balance sheets, measured as a percentage of GDP, had shrunk significantly in the three decades preceding the global financial crisis. "By that yardstick, their [recent] expansion merely marks a return to earlier levels," they write. Put differently, central bank balance sheets had become small relative to the financial sector. Contemporary policy appears "unconventional" only because of the post-1980 paradigm that declared balance sheet operations to be an ineffective tool of monetary policy. 

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