Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/334939 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3079
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Unprecedented balance sheet expansion in recent years has resulted in heightened financial risk for central banks, reflected initially in higher profits and subsequently in significant losses. Combining data on central bank balance sheets with market data on asset prices, we provide evidence on the evolution and determinants of financial risk-taking by 18 advanced economy central banks. Based on the estimated Value at Risk (VaR), we document that average central bank balance sheet risk increased to about 3 percent of GDP. Central banks took more risk in periods of low policy rates, less expansionary fiscal policies, and more favorable growth prospects. Less independent central banks were more risk averse than their more independent peers, contrary to the fiscal dominance view.
Subjects: 
Central bank profitability
Central bank independence
Monetary-fiscal interactions
Monetary policy
central bank
financial risk
economic independence
profitability
balance sheet
fiscal policy
JEL: 
52
E58
E63
G32
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7386-1
Document Type: 
Working Paper

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