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Does Central Bank Financial Strength Matter for Inflation? An Empirical Analysis

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  • Sona Benecka
  • Tomas Holub
  • Narcisa Liliana Kadlcakova
  • Ivana Kubicova

Abstract

This paper analyses empirically the link between central bank financial strength and inflation. The issue has become very topical in recent years as many central banks have accumulated large financial exposures and the risk of losses has risen. We conclude that even though some estimates show a statistically significant and potentially non-linear negative relationship between several measures of central bank financial strength and inflation, this link appears rather weak and not as robust as suggested by the previous - very limited - literature. In general, other inflation determinants play a much more important and robust role.

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Bibliographic Info

Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2012/03.

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Date of creation: May 2012
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Handle: RePEc:cnb:wpaper:2012/03

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Keywords: Central bank financial strength; central bank independence; inflation; monetary policy; seigniorage.;

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References

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  1. de Carvalho Filho Irineu E, 2011. "28 Months Later: How Inflation Targeters Outperformed Their Peers in the Great Recession," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-46, July.
  2. Alfaro, Laura, 2005. "Inflation, openness, and exchange-rate regimes: The quest for short-term commitment," Journal of Development Economics, Elsevier, vol. 77(1), pages 229-249, June.
  3. Camilo Ernesto Tovar Mora & Pedro Castro & Gustavo Adler, 2012. "Does Central Bank Capital Matter for Monetary Policy?," IMF Working Papers 12/60, International Monetary Fund.
  4. Crowe, Christopher & Meade, Ellen E., 2008. "Central bank independence and transparency: Evolution and effectiveness," European Journal of Political Economy, Elsevier, vol. 24(4), pages 763-777, December.
  5. Marco Terrones & Luis Catão, 2001. "Fiscal Deficits and Inflation," IMF Working Papers 01/74, International Monetary Fund.
  6. Martin Cincibuch & Tomáš Holub & Jaromír Hurník, 2009. "Central Bank Losses and Economic Convergence," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(3), pages 190-215, August.
  7. Ari Aisen & Francisco José Veiga, 2005. "Does Political Instability Lead to Higher Inflation? A+L2990 Panel Data Analysis," IMF Working Papers 05/49, International Monetary Fund.
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Cited by:
  1. Bank for International Settlements, 2013. "Central bank finances," BIS Papers, Bank for International Settlements, number 71, May.

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