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A Macro-economic Consequence of the Central Bank's Reserve Fund: A Political-economic Perspective

  • Kim, Iljoong
  • Kim, Inbae
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    Academic attention to the central bank's retained profits has been scarce, although their magnitudes are nontrivial. This paper confirms that the profits retained as a reserve fund, if combined with unconstrained bureaucratic discretion, can engender inflationary bias. This result is intriguing because the previous literature emphasizes a similar distortion in monetary policy for the opposite case where those profits are turned over to the Treasury. We therefore propose that some external changes in central-banking institutions alone may not warrant their desired 'outcome' without reining in excessive discretion. This proposition can provide a beneficial implication for establishing the meaningful independence of central banks.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/22025/1/HJeco0520201430.pdf
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    Article provided by Hitotsubashi University in its journal Hitotsubashi Journal of Economics.

    Volume (Year): 52 (2011)
    Issue (Month): 2 (December)
    Pages: 143-163

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    Handle: RePEc:hit:hitjec:v:52:y:2011:i:2:p:143-163
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