Moreover, reputation is a function of expectations that central bank conducts public policy from an economic perspective instead of being limited by balance sheet considerations. That is to say, reputation should be charged against the achievement of the policy target instead of the negative capital and\/or losses incurred. Evidence has showed central banks having negative capital but have not suffered from reputational risk.<\/p>\n\n\n\n
With the uncertainty presented by the COVID-19 pandemic or for any other future severe economic crisis for that matter, it is in such times that the public looks at the central bank (and the Ministry of Finance and Economy) for solutions and direction to mitigate the negative economic impacts. For the central bank, an operational loss may become inevitable given low interest rates. In such situations, central banks should aim at minimizing the operational loss, but not to lose foresight of its roles or mandates. Importantly, it is also at such moments the reputation of central bank governors is put to the test.<\/p>\n\n\n\n
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