Estimation and Determinants of Cost Efficiency: Evidence from Central Bank Operational Expenses

September 15, 2023

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Format: Chicago

Romain M Veyrune, and Solo Zerbo. Estimation and Determinants of Cost Efficiency: Evidence from Central Bank Operational Expenses, (USA: International Monetary Fund, 2023) accessed November 8, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The finances of central banks is a topic of renewed interest: many central banks are posting significant losses due to the cost of monetary policy, over which central banks have no control. Conversely, operational expenses, over which the central banks have more control, is a subject of less attention. We use public income statement data from central banks to calculate a score for operational expense efficiency based on a stochastic frontier analysis. In addition, we offer potential explanations for the observed variations in efficiency levels across central banks. Our analysis reveals significant heterogeneity across countries and income groups. Central banks with a single objective demonstrate higher efficiency compared with those with multiple objectives. Regarding the output of price stability, central banks in low-income developing countries exhibit lower efficiency compared with central banks in emerging markets and advanced economies. Factors such as central bank independence, the depth of the financial system, and the degree of openness play a role in influencing efficiency levels. Our findings underscore the significance of well-defined objectives, the operating environment, and concentration on core activities in reducing inefficiency.

Subject: Central bank autonomy, Central bank mandate, Central Banks, Emerging and frontier financial markets, Financial markets, Income, National accounts, Price stabilization, Prices

Keywords: Central bank autonomy, Central bank efficiency, Central bank mandate, Cost efficiency, Efficiency estimate, Efficiency level, Emerging and frontier financial markets, Financial depth, Income, Operating independence, Operation function, Operational efficiency, Price stabilization, Stochastic frontier analysis, Trade

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/195
Stock No:

WPIEA2023195
ISBN:

9798400253102
ISSN:

1018-5941

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