Does Central Bank Financial Strength Matter for Inflation? An Empirical Analysis
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.
JEL codes: E31, E52, E58
Keywords: Central bank financial strength, central bank independence, inflation, monetary policy, seigniorage
Issued: May 2012
Download: CNB WP No. 3/2012 (pdf, 590 kB)