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Monetary Policy Normalization and Central Bank Profits: A Break-Even Point Perspective

Zbigniew Polański and Szadkowski Mikołaj
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Szadkowski Mikołaj: SGH Warsaw School of Economics, Institute of Political Economy, Law and Economic Policy, Warszawa, Poland

The Economists' Voice, 2022, vol. 19, issue 2, 139-164

Abstract: This paper advances a simple framework explaining how monetary policy normalization (“exit policies”) may impact central bank profits. The cases of seven central banks of major and smaller economies serve as an illustration. The notion of the break-even point is applied to study the financial situation of these institutions for the period of 2014–2021. During the normalization process, interest rate increases may adversely affect profit changes, and through transfers may have an impact on the fiscal space available to the governments, creating political economy concerns. Possible remedies are discussed together with accompanying policy dilemmas.

Keywords: central bank profit; break-even point; seigniorage; central bank capital; monetary policy normalization (search for similar items in EconPapers)
JEL-codes: E52 E58 E59 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/ev-2022-0006

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