Central Bank Balance Sheet Analysis

Philipp Bagus and David Howden

MPRA Paper from University Library of Munich, Germany

Abstract: Balance sheet analysis is standard practice for assessing private sector businesses. No such analysis has been applied to central banks previously. We provide the theoretical foundation and rationale for such analysis. This foundation is rooted in the quality theory of money which places special emphasis on subjective factors as a complement to the more conventional quantitative factors that determine money’s purchasing power. The balance sheet of a central bank reveals the quality of the assets backing a currency and serves as an indicator of future monetary policy. Several accounting ratios proxy the quality of money in terms of assets held by the central bank, alluding to potential shifts in its purchasing power. These ratios can also be used to estimate the scope of future monetary policies that are feasible by the central bank.

Keywords: Central Bank Balance Sheet; Quality of Money; Balance sheet analysis; Monetary Policy; Inflation (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 E59 M4 M40 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-acc, nep-mac and nep-mon
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Citations: View citations in EconPapers (6)

Published in Betriebswirtschaftliche Forschung und Praxis 68.2(2016): pp. 109-125

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:79801

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