Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 457: Central Bank Losses and Inflation: 350 Years of Evidence
Anna Grodecka-Messi (), Martin Kliem () and Gernot J. Muller ()
Additional contact information
Anna Grodecka-Messi: Financial Stability Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Martin Kliem: Deutsche Bundesbank
Gernot J. Muller: University of Tübingen, CEPR and CESifo
Abstract: Are central bank losses inflationary? We address this question at two levels. First, we revisit the theory and show that central bank losses constrain the conduct of monetary policy and are indeed inflationary provided the central bank is (a) not automatically recapitalized by the government and (b) concerned about its net worth. Second, we collect 350 years of data on the world’s oldest central bank, the Sveriges Riksbank. We construct a time series for its return on assets and a narrative measure of profitability shocks. We find that inflation increases strongly and persistently in response to exogenous declines in central bank profits.
Keywords: Inflation; Central Banks; Central Bank Profitability; Central Bank Losses; Sveriges Riksbank
Language: English
62 pages, November 1, 2025
Full text files
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