There are good reasons to believe that there will be no return to the pre-QE configuration of balance sheets. First, the increasing global financial integration in the last few decades has imposed increasing challenges in terms of making liquidity management effective as cross-border volumes of capital flows have expanded significantly. Second, changes to financial regulation have induced private agents to alter their behavior and strategies. Finally, a new task has come under the purview of central banks: monitoring relationships between various benchmark curves—i.e., operating as quasi-market makers. As a spill-over from abroad, central bank balance sheets in some emerging market economies also bloated. The era of bloated central bank balance sheets seems to be a component of the “new normal”, even if they undergo some diet in the future.

Private balance sheets have risen relative to GDP in advanced economies in the last decades, in tandem with a trend of decline in long-term real interest rates. Asset-driven macroeconomic cycles, along with a structural trend of rising influence of finance on income growth and distribution, have become part of the landscape. Underlying secular trends of stagnation may also be suggested, making the macroeconomic dynamics dependent on the balance sheet economy getting bigger and bigger.