Central Bank Losses and Inflation: 350 Years of Evidence

Anna Grodecka-Messi, Martin Kliem and Müller, Gernot

No 22029, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Are central bank losses inflationary? We show in a simple model that, absent fiscal support, large losses can create a trade-off between stabilizing inflation and stabilizing central bank net worth. We then provide evidence that central bank net worth matters for monetary policy in practice, drawing on a new historical data set with more than 350 years of annual data for Sweden and its central bank, the Riksbank. Using a narrative approach, we identify large adverse shocks to the Riksbank's profitability and trace their dynamic effects. They raise inflation persistently under fiat but not under metallic standards. Moreover, adverse import-price shocks generate more inflation and a more accommodative monetary response when central bank net worth is low. This historical evidence therefore bears directly on current debates over the monetary-policy consequences of large and risky central-bank balance sheets.

Keywords: Inflation (search for similar items in EconPapers)
JEL-codes: E52 E58 N13 N14 (search for similar items in EconPapers)
Date: 2026-10
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP22029 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:22029

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP22029

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().