Central Bank Financial Strength, Policy Constraints and Inflation

February 1, 2008

Preview Citation

Format: Chicago

Peter Stella. Central Bank Financial Strength, Policy Constraints and Inflation, (USA: International Monetary Fund, 2008) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Central bank financial strength is positively associated with good policy performance. Financially weak central banks generate losses which undermine macroeconomic stability and call into question the credibility of their policies. In assessing central bank financial strength a careful examination of the policy regime and the volatility of the economic environment is necessary. Conventional measures of private enterprise financial strength- profitability and capital-can be very misleading when applied to central banks. The way in which a central bank balance sheet is strengthened matters. Providing the central bank with marketable government debt that can be used to develop a money market that in turn may become the locus of central bank monetary operations serves both to directly strengthen the institution and improve the quality of the environment in which it operates, thereby facilitating the attainment of its ultimate performance objectives.

Subject: Banking, Central bank balance sheet, Financial statements, Inflation, International reserves

Keywords: Balance sheet, Central bank loss, Foreign exchange, Performance reporting, Rate of inflation, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/049
Stock No:

WPIEA2008049
ISBN:

9781451869118
ISSN:

1018-5941

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