Abstract
Central Bank Governance and Reserve Portfolios Investment Policies: An Empirical Analysis
Highlights
We test the extent to which governance arrangements matter for risk taking and diversification in foreign reserves portfolios while controlling for the broader governance environment in which central banks operate, the level of reserve adequacy, the macroenvironment, or country risk
We examine if approving the investment guidelines at the board or the investment committee level makes any difference for reserve management operations
Central bank board members may not be financial experts and have less time to focus on reserve management policy
Summary
According to Bossu and Rossi (2019), the concept of central bank governance is multifaceted. They contend that a clearly defined central bank mandate and decision-making structure are essential to support accountability and legitimacy. Such a mandate should elaborate on objectives, functions, and powers, specifying the legal tools available for a central bank to implement its functions. Given the complexity of central banks and the multiple responsibilities they assume, it is crucial to define what to decide, who must decide, and how decisions must be made (Bossu and Rossi 2019)
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