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Central Bank Financial Strength, Transparency, and Policy Credibility

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  • Peter Stella

    (International Monetary Fund)

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    Abstract

    Although rarely acknowledged explicitly, the financial strength of an independent and credible central bank must be commensurate with its policy tasks and the risks it faces. This paper explores the relationship between central bank financial strength and policy outcomes, stressing the importance of financial independence as a fundamental support to policy credibility. The attributes of an adequate central bank capital policy are discussed and implications drawn for the appropriate way in which central banks ought to be recapitalized. Reasons why this issue has not been clearly analyzed in the past-primarily owing to idiosyncratic and obscure central bank accounting-are also presented.

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

    Volume (Year): 52 (2005)
    Issue (Month): 2 (September)
    Pages: 335-365

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    Handle: RePEc:pal:imfstp:v:52:y:2005:i:2:p:335-365

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    Cited by:
    1. Thomas F. Cargill, 2006. "Central bank capital, financial strength, and the Bank of Japan," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may19.
    2. Cukierman, Alex, 2011. "Reflections on the crisis and on its lessons for regulatory reform and for central bank policies," Journal of Financial Stability, Elsevier, vol. 7(1), pages 26-37, January.
    3. Marcel Peter & Scott Roger & Geoffrey Heenan, 2006. "Implementing Inflation Targeting," IMF Working Papers 06/278, International Monetary Fund.
    4. Nada Oulidi & Alain Ize, 2009. "Why Do Central Banks Go Weak?," IMF Working Papers 09/13, International Monetary Fund.
    5. Martin Cincibuch & Tomas Holub & Jaromir Hurnik, 2008. "Central Bank Losses and Economic Convergence," Working Papers 2008/3, Czech National Bank, Research Department.
    6. Bernard Laurens & Marco Arnone & Jean-François Segalotto, 2006. "The Measurement of Central Bank Autonomy," IMF Working Papers 06/227, International Monetary Fund.
    7. Vithessonthi, Chaiporn & Techarongrojwong, Yaowaluk, 2012. "The impact of monetary policy decisions on stock returns: Evidence from Thailand," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(3), pages 487-507.
    8. Jorge E. Restrepo L. & Luis Salomó S. & Rodrigo O. Valdés P., 2009. "Macroeconomy, Monetary Policy and Central Bank Capitalization," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 12(1), pages 5-38, April.
    9. Ljungwall, Christer & Xiong, Yi & Zou, Yutong, 2009. "Central Bank Financial Strength And The Cost Of Sterilization In China," Working Paper Series 2009-8, China Economic Research Center, Stockholm School of Economics.
    10. Perera, Anil & Ralston, Deborah & Wickramanayake, Jayasinghe, 2013. "Central bank financial strength and inflation: Is there a robust link?," Journal of Financial Stability, Elsevier, vol. 9(3), pages 399-414.
    11. Peter Stella & Ulrich H. Klueh, 2008. "Central Bank Financial Strength and Policy Performance," IMF Working Papers 08/176, International Monetary Fund.
    12. Sònia Muñoz, 2007. "Central Bank Quasi-Fiscal Losses and High Inflation in Zimbabwe: A Note," IMF Working Papers 07/98, International Monetary Fund.
    13. Ljungwall, Christer & Xiong, Yi & Yutong, Zou, 2013. "Central bank financial strength and the cost of sterilization in China," China Economic Review, Elsevier, vol. 25(C), pages 105-116.

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