FRIC/FI Seminar with Vasso Ioannidou, Lancaster University

FRIC Center for Financial Frictions and the Department of Finance are proud to announce the upcoming seminar with Vasso Ioannidou, Lancaster University.

Vasso Ioannidou will present: 

Do Central Banks try to Avoid Losses? Why? And Does it Matter for Policy?

Authors:
Igor Goncharov, Lancaster University
Martin Schmalz, University of Michigan
Vasso Ioannidou, Lancaster University

ABSTRACT
We document that central banks are significantly more likely to report slightly positive profits than slightly negative profits. The discontinuity in the profit distribution is (i) more pronounced amid greater political or public pressure, the public’s receptiveness to more extreme political views, and agency frictions arising from governor career concerns (ii) absent when no such factors are present, and (iii) correlated with more lenient monetary policy inputs and greater inflation. These findings indicate that balance sheet considerations, while absent from standard theoretical models of central banking, are both present and effective in practice. These facts inform a theoretical debate about monetary stability and the effectiveness and riskiness of non-traditional central banking.