(Why) Do Central Banks Care about Their Profits?

75 Pages Posted: 5 Jun 2017 Last revised: 10 Jul 2020

See all articles by Igor Goncharov

Igor Goncharov

Lancaster University - Department of Accounting and Finance

Vasso Ioannidou

Lancaster University - Management School; Centre for Economic Policy Research (CEPR)

Martin C. Schmalz

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

Multiple version iconThere are 2 versions of this paper

Date Written: July 9, 2020

Abstract

We document that central banks are significantly 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 more lenient monetary policy and higher inflation. We conclude that profitability concerns, although absent from standard theory, are present and effective in practice. These findings inform a debate about the political economy of central banking, monetary stability, and the effectiveness of non-traditional central banking.

Keywords: Central Banks, Profitability, Non-Traditional Central Banking, Monetary Stability

JEL Classification: E58

Suggested Citation

Goncharov, Igor and Ioannidou, Vasso and Schmalz, Martin C., (Why) Do Central Banks Care about Their Profits? (July 9, 2020). 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

Lancaster University - Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Martin C. Schmalz (Contact Author)

University of Oxford - Finance ( email )

United States

CEPR ( email )

London
United Kingdom

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

European Corporate Governance Institute (ECGI) ( email )

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

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