IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/02-137.html
   My bibliography  Save this paper

Central Bank Financial Strength, Transparency, and Policy Credibility

Author

Listed:
  • Peter Stella

Abstract

A central bank is financially strong if it possesses resources sufficient to attain its fundamental policy objective(s). Once endowed with those resources, relations between government and central bank should be designed so that significant changes in central bank financial strength do not occur unless necessitated by changes in policy objectives. The level of strength required depends on the array of policy objectives (for example, the exchange rate regime) as well as the constraints and risks presented by the operational environment. Attaining credibility is facilitated if the public can easily determine the financial strength of the bank, yet for a variety of reasons this is often difficult. Transparency requires institutional arrangements that ensure the central bank generates profit in most states of the world, is subject to strict ex post independent audit, and transfers regularly all profits, after provisions, to the treasury.

Suggested Citation

  • Peter Stella, 2002. "Central Bank Financial Strength, Transparency, and Policy Credibility," IMF Working Papers 02/137, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:02/137
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=15893
    Download Restriction: no

    References listed on IDEAS

    as
    1. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    2. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
    3. Cukierman, Alex & Miller, Geoffrey P. & Neyapti, Bilin, 2002. "Central bank reform, liberalization and inflation in transition economies--an international perspective," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 237-264, March.
    4. Milesi-Ferretti, Gian Maria, 2004. "Good, bad or ugly? On the effects of fiscal rules with creative accounting," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 377-394, January.
    5. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-963, September.
    6. Alan S. Blinder, 2000. "Central-Bank Credibility: Why Do We Care? How Do We Build It?," American Economic Review, American Economic Association, vol. 90(5), pages 1421-1431, December.
    7. Faust, Jon & Svensson, Lars E O, 2001. "Transparency and Credibility: Monetary Policy with Unobservable Goals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 369-397, May.
    8. Maxwell J. Fry, 1993. "The Fiscal Abuse of Central Banks," IMF Working Papers 93/58, International Monetary Fund.
    9. Daniel Gros & Franziska Schobert, 1999. "Excess foreign exchange reserves and overcapitalisation in the Eurosystem," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 52(19), pages 25-35, October.
    10. Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 97/83, International Monetary Fund.
    11. Liliana B Schumacher & Mario I. Bléjer, 1998. "Central Bank Vulnerability and the Credibility of Commitments; A Value-at-Risk Approach to Currency Crises," IMF Working Papers 98/65, International Monetary Fund.
    12. David Backus & John Driffill, 1985. "Rational Expectations and Policy Credibility Following a Change in Regime," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 211-221.
    13. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
    14. George A Mackenzie & Peter Stella, 1996. "Quasi-Fiscal Operations of Public Financial Institutions," IMF Occasional Papers 142, International Monetary Fund.
    15. George Kopits, 2001. "Fiscal Rules; Useful Policy Framework or Unnecessary Ornament?," IMF Working Papers 01/145, International Monetary Fund.
    16. Kenneth Sullivan, 2000. "Transparency in Central Bank Financial Statement Disclosures," IMF Working Papers 00/186, International Monetary Fund.
    17. Tomás J. T. Baliño & Charles Enoch & William E. Alexander, 1995. "The Adoption of Indirect Instruments of Monetary Policy," IMF Occasional Papers 126, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cukierman, Alex, 2008. "Central bank independence and monetary policymaking institutions -- Past, present and future," European Journal of Political Economy, Elsevier, vol. 24(4), pages 722-736, December.
    2. Olivier Jeanne & Lars E. O. Svensson, 2007. "Credible Commitment to Optimal Escape from a Liquidity Trap: The Role of the Balance Sheet of an Independent Central Bank," American Economic Review, American Economic Association, vol. 97(1), pages 474-490, March.
    3. Schobert, Franziska, 2006. "Linking financial soundness and independence of central banks--Central and Eastern Europe, Turkey and CIS countries," Research in International Business and Finance, Elsevier, vol. 20(2), pages 239-255, June.
    4. Karel Brůna, 2010. "Akumulace devizových rezerv centrálních bank a dynamika absorpce likvidity bankovních systémů České republiky, Polska a Maďarska
      [Central Bank´s Foreign Exchange Reserves Accumulation and Dynamics
      ," Politická ekonomie, University of Economics, Prague, vol. 2010(6), pages 723-746.
    5. Martin Mandel & Vladimír Zelenka, 2009. "Ztráta centrální banky - účetní a ekonomický pohled na příkladě České národní banky
      [Central bank Losses. An Economic and Accounting Perspective Using the Example of the Czech National Bank]
      ," Politická ekonomie, University of Economics, Prague, vol. 2009(6), pages 723-739.
    6. 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.
    7. Ljungwall, Christer & Xiong, Yi & Zou, Yutong, 2009. "Central Bank Financial Strength And The Cost Of Sterilization In China," Working Paper Series 2009-8, Stockholm School of Economics, China Economic Research Center.
    8. 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.

    More about this item

    Keywords

    Central banks; Central banks and their policies; Transparency; Central bank losses; credibility; central bank; inflation; monetary fund; monetary policy;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:02/137. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi). General contact details of provider: http://edirc.repec.org/data/imfffus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.