Working Paper

Applying Efficiency Measurement Techniques to Central Banks

Loretta J. Mester

Federal Reserve Bank of Cleveland and the Wharton School, University of Pennsylvania

July 2003

WP 03-13 – This paper reviews the standard techniques of efficiency measurement, discusses some of the issues that arise in applying these standard techniques to central banks, and reviews some of the literature that has attempted to apply these techniques to central banking.

The uniqueness of some of the activities of central banking, the difficulty in measuring some of the central banking outputs, and the complicated and multiple objectives pursued by central banks makes application of the standard techniques problematic. However, certain central bank activities do lend themselves to efficiency measurement, e.g., payment services provision.

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