Central Bank Financial Strength and Policy Performance: An Econometric Evaluation

July 1, 2008

Preview Citation

Format: Chicago

Peter Stella, and Ulrich H Klueh. Central Bank Financial Strength and Policy Performance: An Econometric Evaluation, (USA: International Monetary Fund, 2008) accessed December 22, 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

The financial health of central banks and its relation to policy outcomes has recently been recognized as an important policy issue. While case study evidence clearly indicates that weak central bank finances can hamper effective policy implementation, the question of whether central bank financial strength influences policy performance remains controversial. This is due, in part, to a lack of econometric evidence. The paper presents a first step toward filling this gap, by providing a quantitative evaluation of the relationship between measures of central bank financial strength and policy performance, in particular inflation. The paper's major finding is that there indeed is a negative relationship between central bank financial strength and inflation outcomes. This relationship appears to be robust to the choice of alternative country samples, control variables, estimation strategies, and conceptualizations of central bank financial strength.

Subject: Banking, Central bank autonomy, Central bank balance sheet, Financial statements, Inflation

Keywords: Central bank financial strength, Exchange rate, Financial condition, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/176
Stock No:

WPIEA2008176
ISBN:

9781451870343
ISSN:

1018-5941

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