Central Bank Balance Sheet Analysis

Bagus, Philipp and Howden, David (2016): Central Bank Balance Sheet Analysis. Published in: Betriebswirtschaftliche Forschung und Praxis , Vol. 2, No. 68 (2016): pp. 109-125.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Central Bank Balance Sheet, Quality of Money, Balance sheet analysis, Monetary Policy, Inflation
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E59 - Other; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M40 - General

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