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A novel decomposition of national central banks’ profits in the euro area: application to the case of Banco de Portugal
We propose a new methodology to decompose the profits of a national central bank within the Eurosystem. Our methodology compares the income generated by the different assets and liabilities with the Eurosystem’s marginal funding cost and distinguishes the income driven by monetary policy decisions taken at the aggregate level (with shared or non-shared income) from that determined by national activities not related with monetary policy. We apply this decomposition to the case of Banco de Portugal for the last two decades and show that the bulk of the central bank’s profits was driven by monetary policy decisions, while income from other assets was on average close to administrative costs.