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Central Bank Financial Strength and Inflation: A Meta-Analysis

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  • Mojmir Hampl
  • Tomas Havranek

Abstract

Several empirical studies have reported that financially weak central banks tend to tolerate systematically higher inflation. If the effect were genuine, central banks would have to pay attention to their capital levels and could not treat them as a residuum. In this note, we take stock of this literature using the statistical techniques of meta-analysis. We collect 176 estimates of the effect of central bank financial strength on inflation and observe that 86% of them are negative, suggesting that low capital levels indeed lead to higher inflation. However, we show that the literature is plagued by publication bias, the preferential reporting of intuitive and significant results. When we correct the literature for this bias, we obtain no evidence for any interplay between central bank financial strength and inflation. The result is robust to employing various meta-regression and nonparametric selection models.

Suggested Citation

  • Mojmir Hampl & Tomas Havranek, 2018. "Central Bank Financial Strength and Inflation: A Meta-Analysis," Research and Policy Notes 2018/01, Czech National Bank.
    • Handle: RePEc:cnb:rpnrpn:2018/01
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    References listed on IDEAS

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    Cited by:

    1. Michal Franta & Tomas Holub & Branislav Saxa, 2022. "Exiting from an Exchange Rate Floor in a Small Open Economy: Balance Sheet Implications of the Czech National Bank's Exchange Rate Commitment," International Journal of Central Banking, International Journal of Central Banking, vol. 18(2), pages 51-105, June.

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    More about this item

    Keywords

    Central bank capital; inflation; monetary policy; publication bias; seigniorage;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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