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(Why) do central banks care about their profits?

Goncharov, I., Ioannidou, V. ORCID: 0000-0002-7996-2346 & Schmalz, M. (2023). (Why) do central banks care about their profits?. The Journal of Finance, 78(5), pp. 2991-3045. doi: 10.1111/jofi.13257


We document that central banks are discontinuously 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 higher inflation and lower interest rates. We conclude that there are agency problems at central banks, which give rise to discontinuous profit incentives and are related to their policy choices and outcomes. These findings inform a debate about the political economy of central banking and central bank design.

Publication Type: Article
Additional Information: © 2023 The Authors. The Journal of Finance published by Wiley Periodicals LLC on behalf of American Finance Association. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
Publisher Keywords: Central Banks, Profitability, Non-Traditional Central Banking, Monetary Stability
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
SWORD Depositor:
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