European Parliament Library

Does Central Bank Capital Matter for Monetary Policy?, Camilo Tovar Mora, Pedro Castro, Gustavo Adler

Heavy foreign exchange intervention by central banks of emerging markets have lead to sizeable expansions of their balance sheets in recent years?accumulating foreign assets and non-money domestic liabilities (the latter due to sterilization operations). With domestic liabilities being mostly of short-term maturity and denominated in local currency, movements in domestic monetary policy interest rates can have sizable effects on central bank's net worth. In this paper we examine empirically whether balance sheet considerations influence the conduct of monetary policy. Our methodology involves the estimation of interest rate rules for a sample of 41 countries and testing whether deviations from the rule can be explained by a measure of central bank financial strength. Our findings, using linear and nonlinear techniques, suggests that central bank financial strength can be a statistically significant factor explaining large negative interest rate deviations from "optimal" levels
Table Of Contents
Cover; Contents; I. Introduction; Figures; 1: Dynamics of Main Components of Central Bank Balance Sheets in EMEs; 2: Dynamics of Key Central Bank Balance Sheet Items by Monetary Regime; II. Methodology and Data; A. Central Bank Financial Strength; B. An Indicator of Constraints on Monetary Policy; C. Putting the pieces together; D. Sample and Data; III. Econometric Results; A. Assessing whether CBFS Interferes with the Conduct of Monetary Policy; 3: Baseline Results from OLS and Quantile Regression; B. Robustness Analysis; 4: Results for IT and Developed Countries
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (24 p.)
Specific Material Designation
Form Of Item

Library Locations

  • EP Library Brussels

    60 rue Wiertz, Brussels, B-1047, BE
  • EP Library Luxembourg

    Rue du Fort Thüngen, Luxembourg, L-1313, LU
  • EP Library Strasbourg

    7 Place Adrien Zeller, Allée du Printemps, Strasbourg, F-67070, FR