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Is the Bank of Japan's Financial Structure an Obstacle to Policy?

Author

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  • Thomas F. Cargill

    (International Monetary Fund)

Abstract

Central bank capital and accounting measures of capital adequacy potentially constrain central bank policy outcomes. Historical and institutional factors explain why central banks are organized as public corporations; however, capital structure design provides little predictive insight into policy outcomes. In fact, focusing on accounting measures of capital adequacy and similar performance indicators potentially interferes with monetary policy, especially in extraordinary economic circumstances such as deflation. The Bank of Japan, like the Federal Reserve in the 1930s, has overemphasized accounting measures of central bank performance at the cost of nonoptimal policy outcomes.

Suggested Citation

  • Thomas F. Cargill, 2005. "Is the Bank of Japan's Financial Structure an Obstacle to Policy?," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 311-334, September.
    • Handle: RePEc:pal:imfstp:v:52:y:2005:i:2:p:311-334
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    Citations

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    Cited by:

    1. Mr. Peter Stella & Mr. Ulrich H Klueh, 2008. "Central Bank Financial Strength and Policy Performance: An Econometric Evaluation," IMF Working Papers 2008/176, International Monetary Fund.
    2. Atsushi Tanaka, 2021. "Central Bank Capital and Credibility: A Literature Survey," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(2), pages 249-262, June.
    3. Thomas F. Cargill & Federico Guerrero, 2007. "Japan's Deflation: A Time‐Inconsistent Policy in Need of an Inflation Target," International Finance, Wiley Blackwell, vol. 10(2), pages 115-130, July.
    4. Julien Pinter, 2018. "Does Central Bank Financial Strength Really Matter for Inflation? The Key Role of the Fiscal Support," Open Economies Review, Springer, vol. 29(5), pages 911-952, November.
    5. Mr. Peter Stella, 2009. "The Federal Reserve System Balance Sheet: What Happened and Why it Matters," IMF Working Papers 2009/120, International Monetary Fund.
    6. Atsushi Tanaka, 2020. "Central Bank Capital and Credibility: A Literature Survey," Discussion Paper Series 208, School of Economics, Kwansei Gakuin University, revised May 2020.
    7. Peter Howells, 2009. "Independent Central Banks: Some theoretical and empirical problems?," Working Papers 0908, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    8. Jakob Korbinian Eberl, 2016. "The Collateral Framework of the Eurosystem and Its Fiscal Implications," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 69.
    9. Ljungwall, Christer & Xiong, Yi & Zou, Yutong, 2009. "Central Bank Financial Strength And The Cost Of Sterilization In China," Working Paper Series 2009-8, Stockholm School of Economics, China Economic Research Center.
    10. Michal Franta & Tomas Holub & Petr Kral & Ivana Kubicova & Katerina Smidkova & Borek Vasicek, 2014. "The Exchange Rate as an Instrument at Zero Interest Rates: The Case of the Czech Republic," Research and Policy Notes 2014/03, Czech National Bank.
    11. Ljungwall, Christer & Xiong, Yi & Yutong, Zou, 2013. "Central bank financial strength and the cost of sterilization in China," China Economic Review, Elsevier, vol. 25(C), pages 105-116.
    12. Perera, Anil & Ralston, Deborah & Wickramanayake, Jayasinghe, 2013. "Central bank financial strength and inflation: Is there a robust link?," Journal of Financial Stability, Elsevier, vol. 9(3), pages 399-414.
    13. David Archer & Paul Moser-Boehm, 2013. "Central bank finances," BIS Papers, Bank for International Settlements, number 71.

    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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