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(Why) do central banks care about their profits?
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(Why) do central banks care about their profits?

Author

Listed:
  • Igor Goncharov

    (Lancaster University)

  • Vasso Ioannidou

    (Lancaster University)

  • Martin C. Schmalz

    (University of Oxford, CEPR, and ECGI)

Abstract

We document that central banks are significantly more likely to report slightly positive profits than slightly negative profits, especially amid greater political pressure, the public’s receptiveness to more extreme political views, and when governors are reappointable. The propensity to report small profits over small losses is correlated with more lenient monetary policy and higher inflation. We conclude that profitability concerns, although absent from standard theory, are present and effective in practice. These findings inform a debate about the political economy of central banking, monetary stability, and the effectiveness of non-traditional central banking.

Suggested Citation

  • Igor Goncharov & Vasso Ioannidou & Martin C. Schmalz, 2020. "(Why) do central banks care about their profits?," ECONtribute Discussion Papers Series 018, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:018
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    More about this item

    Keywords

    Central Banks; Profitability; Non-Traditional Central Banking; Monetary Stability;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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