The empirical literature on this issue is so far very limited. One notable exception is the paper by Klüh and Stella (2008). The authors of this paper found a relatively stable and robust negative relationship between central bank financial strength and inflation, but at the same time suggested that only a relatively strong impairment of the central bank’s balance sheet would result in a significant worsening of inflation performance. Another recent contribution is Adler et al. (2012), which suggests that central bank financial strength can be a statistically significant factor explaining large negative interest rate deviations from a forward-looking Taylor.
