(Why) Do Central Banks Care about Their Profits?
90 Pages Posted: 5 Jun 2017 Last revised: 15 Dec 2021
Date Written: December 15, 2021
We document that central banks are discontinuously more likely to report slightly positive profits than slightly negative profits, especially amid greater political pressure, the public’s receptiveness to more extreme political views, and when governors are reappointable. The propensity to report small profits over small losses is correlated with higher inflation and lower interest rates. We conclude that there are agency problems at central banks, which give rise to discontinuous profit incentives and are related to their policy choices and outcomes. These findings inform a debate about the political economy of central banking and central bank design.
Keywords: Central Banks, Profitability, Non-Traditional Central Banking, Monetary Stability
JEL Classification: E58
Suggested Citation: Suggested Citation