Central Bank Losses and Economic Convergence
This paper discusses the issue of central bank losses, developing a framework for assessing the ability of a central bank to keep its balance sheet sustainable without having to default on its policy objectives. Compared to the earlier literature, it analyses in more depth the consequences of economic convergence for the evolution of the central bankâ€™s balance sheet and the important role played in this process by the risk premium and equilibrium real exchange rate appreciation. A combination of a closed-form comparative-static analysis and numerical solutions of the future evolution of the central bankâ€™s own capital is used. Applying the framework to the Czech National Bankâ€™s case, the paper concludes that the CNB should be able to repay its accumulated loss in about 15 years without any transfer from public budgets.
|Date of creation:||Oct 2008|
|Date of revision:|
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- Sinn, Hans-Werner & Feist, Holger, 1997.
"Eurowinners and Eurolosers: The distribution of seigniorage wealth in EMU,"
Munich Reprints in Economics
19567, University of Munich, Department of Economics.
- Feist, Holger & Sinn, Hans-Werner, 1997. "Eurowinners and Eurolosers: The Distribution of Seigniorage Wealth in EMU," CEPR Discussion Papers 1747, C.E.P.R. Discussion Papers.
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- Ã…ke LÃ¶nnberg & Peter Stella, 2008. "Issues in Central Bank Finance and Independence," IMF Working Papers 08/37, International Monetary Fund.
- Bindseil, Ulrich & Manzanares, Andrés & Weller, Benedict, 2004. "The role of central bank capital revisited," Working Paper Series 0392, European Central Bank.
- Matthew Higgins & Thomas Klitgaard, 2004. "Reserve accumulation: implications for global capital flows and financial markets," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(Sep).
- Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 97/83, International Monetary Fund.
- Peter Stella, 2005. "Central Bank Financial Strength, Transparency, and Policy Credibility," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 335-365, September.
- John Hawkins, 2003. "Central bank balance sheets and fiscal operations," BIS Papers chapters, in: Bank for International Settlements (ed.), Fiscal issues and central banking in emerging economies, volume 20, pages 71-83 Bank for International Settlements.
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