Martin Schmalz, Oxford: "(Why) Do Central Banks Care about Their Profits?"
Department seminar. Martin Schmalz is an Associate Professor of Finance, Saïd Business School, at University of Oxford. He will present his paper: "(Why) Do Central Banks Care about Their Profits?". Co-authored by Igor Goncharov and Vassos Ioannidou.
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. Profit concerns are absent when no such factors are present. The propensity to report small profits over small losses is correlated with a more lenient monetary policy and greater tolerance for inflation. We conclude that profitability concerns, although absent from standard theory, are present and effective in practice. These findings inform a debate about monetary stability and the effectiveness of non-traditional central banking.