(Why) Do Central Banks Care about Their Profits?

90 Pages Posted: 5 Jun 2017 Last revised: 15 Dec 2021

See all articles by Igor Goncharov

Igor Goncharov

Lancaster University - Department of Accounting and Finance

Vasso Ioannidou

Centre for Economic Policy Research (CEPR); The Business School (formerly Cass)

Martin C. Schmalz

CEPR; University of Oxford - Finance; CESifo; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

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

Goncharov, Igor and Ioannidou, Vasso and Ioannidou, Vasso and Schmalz, Martin C. and Schmalz, Martin C., (Why) Do Central Banks Care about Their Profits? (December 15, 2021). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2979887 or http://dx.doi.org/10.2139/ssrn.2979887

Igor Goncharov

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom

Vasso Ioannidou

The Business School (formerly Cass) ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Martin C. Schmalz (Contact Author)

CEPR ( email )

United Kingdom

University of Oxford - Finance ( email )

United States

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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