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Macroeconomy, Monetary Policy and Central Bank Capitalization

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  • Jorge E. Restrepo L.
  • Luis Salomó S.
  • Rodrigo O. Valdés P.
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    Abstract

    This paper offers stochastic projections of the Central Bank of Chile’s balance sheet (stocks and flows), grounded on its present deficit situation. These projections incorporate the effect on the balance sheet of some macroeconomic variables and alternative policies, taking into consideration the economy’s inherent uncertainty and risks. It also describes and evaluates the main causes of the current deficit. In the baseline scenario, our deterministic projections show that the Central Bank’s capital will tend to grow and reach positive figures after twenty-five years. However, statistical projections indicate that this capital will continue in the red twenty-five years into the future with a 69% probability. On the other hand, a capital contribution of 7% of GDP would be necessary for senior liabilities not to surpass assets in ten years’ time, with a 95% probability. The likely evolution of capital is more favorable in the long run if the reserve hoarding growth rate is moderated, if minimum capital is established in real terms instead of nominal terms, and if accrued, unrealized, foreign exchange gains are not distributed.

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    File URL: http://www.bcentral.cl/eng/studies/economia-chilena/2009/apr/recv12n1abril2009pp05-38.pdf
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    Bibliographic Info

    Article provided by Central Bank of Chile in its journal Economía Chilena.

    Volume (Year): 12 (2009)
    Issue (Month): 1 (April)
    Pages: 5-38

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    Handle: RePEc:chb:bcchec:v:12:y:2009:i:1:p:5-38

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Alain Ize, 2006. "Spending Seigniorage," IMF Working Papers 06/58, International Monetary Fund.
    2. Alain Ize, 2005. "Capitalizing Central Banks," IMF Working Papers 05/15, International Monetary Fund.
    3. Cysne, Rubens P. & Maldonado, Wilfredo L. & Monteiro, Paulo Klinger, 2005. "Inflation and income inequality: A shopping-time approach," Journal of Development Economics, Elsevier, vol. 78(2), pages 516-528, December.
    4. Peter Stella, 2005. "Central Bank Financial Strength, Transparency, and Policy Credibility," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 335-365, September.
    5. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
    6. Peter Stella & Ulrich H. Klueh, 2008. "Central Bank Financial Strength and Policy Performance," IMF Working Papers 08/176, International Monetary Fund.
    7. Jose De Gregorio & Federico Sturzenegger, 1994. "Credit Markets and the Welfare Costs of Inflation," NBER Working Papers 4873, National Bureau of Economic Research, Inc.
    8. Alain Ize, 2005. "Capitalizing Central Banks: A Net Worth Approach," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 289-310, September.
    9. Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 97/83, International Monetary Fund.
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