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Central bank losses: causes and consequences
Author(s) -
Sweidan Osama D.
Publication year - 2011
Publication title -
asian‐pacific economic literature
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.232
H-Index - 21
eISSN - 1467-8411
pISSN - 0818-9935
DOI - 10.1111/j.1467-8411.2011.01281.x
Subject(s) - central bank , inflation (cosmology) , economics , monetary economics , revenue , monetary policy , ignorance , economic policy , finance , philosophy , physics , epistemology , theoretical physics
This paper seeks to understand the causes and consequences of central banks' losses. Ignorance of this vital issue over a sustained period has led to negative impacts on economies and on central banking and monetary policy effectiveness. Data from developing countries and economies in transition show that central bank losses have reached significant magnitudes. Engaging in quasi‐fiscal activities is responsible for most such losses because it increases central banks' expenditures. The main features of these fiscal activities are their large size and riskiness, and they are difficult to control. Central bank revenues can also be negatively affected because of declines in inflation rates and in the demand for money.