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IMF Staff Papers Logo    Last updated: September 2005
Volume 52, Number 2
Is the Bank of Japan's Financial Structure
an Obstacle to Policy?

Thomas F. Cargill

Full Text of this Article (PDF 256K)

Abstract: Central bank capital and accounting measures of capital adequacy potentially constrain central bank policy outcomes. Historical and institutional factors explain why central banks are organized as public corporations; however, capital structure design provides little predictive insight into policy outcomes. In fact, focusing on accounting measures of capital adequacy and similar performance indicators potentially interferes with monetary policy, especially in extraordinary economic circumstances such as deflation. The Bank of Japan, like the Federal Reserve in the 1930s, has overemphasized accounting measures of central bank performance at the cost of nonoptimal policy outcomes.
[JEL E58, E31, E63]