Articles
Do Disinflation Policies Ravage Central Bank Finances?, with Kris Mitchener and Eric Monnet, Economic Policy
Advanced-economy central banks are currently generating losses. To examine whether these are attributable to the current rate-tightening cycle, we examine the finances of ten advanced-economy central banks during the 1970s and 1980s, the most notable and comparable policy environment to the present. In response to the anti-inflationary measures of the 1980s, central bank profits actually increased, suggesting that disinflation campaigns, in and of themselves, are not the source of present-day losses. We discuss how central bank profits depend on their policy instruments as well as their balance-sheet position when rate tightening begins. Unlike today, central banks in the 1980s avoided losses because they did not remunerate bank reserves and their balance sheets did not carry the legacy of a decade of large asset purchases at low interest rates and long maturity. Our counterfactuals show that only a combination of these factors could have triggered losses in the 1980s: none of them is sufficient on its own. Where losses emerged in the late 1970s, before the Volcker shock, they were due to foreign-exchange reserves depreciating. In these instances, when central banks carried them forward and did not rely on transfers from the government, there was no loss of central bank independence or their ability to fight inflation.
Work in progress: Central Bank Finances in History, with Kris Mitchener and Eric Monnet
Book chapters
Les pertes des banques centrales: enjeux financiers et d'économie politique, L'économie mondiale 2025, Editions La Découverte, Chapitre X.