(Why) Do Central Banks Care About Their Profits?

63 Pages Posted: 24 Jul 2017

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 04, 2017

Abstract

We document that central banks are significantly more likely to report slightly positive profits than slightly negative profits.

The discontinuity in the profit distribution is:

(i) more pronounced amid greater political or public pressure, the public’s receptiveness to more extreme political views, and agency frictions arising from governor career concerns, but absent when no such factors are present, and

(ii) correlated with more lenient monetary policy inputs and greater inflation.

These findings indicate that profitability concerns, while absent from standard theoretical models of central banking, are both present and effective in practice, and inform a theoretical debate about monetary stability and the effectiveness and riskiness of non-traditional central banking.

Keywords: central banks, profitability, non-traditional central banking, monetary stability

JEL Classification: E580

Suggested Citation

Goncharov, Igor and Ioannidou, Vasso and Schmalz, Martin C., (Why) Do Central Banks Care About Their Profits? (July 04, 2017). CESifo Working Paper Series No. 6546. Available at SSRN: https://ssrn.com/abstract=3005887

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 ECARES ULB CP 114
B-1050 Brussels
Belgium

Register to save articles to
your library

Register

Paper statistics

Downloads
59
rank
40,437
Abstract Views
244
PlumX Metrics