Investigating Eurosystem Central Banking Efficiency: A Data Envelopment Analysis Approach

Abstract

Very few studies investigated central banking efficiency. Although Data Envelopment Analysis is widely used to measure efficiency within the banking industry, it has surprisingly never been implemented in a central banking context. In our study, we employ a radial DEA model to measure Eurosystem central banking efficiency. The Eurosystem monetary scheme offers interesting properties that allow DEA to be implemented with minimum noise. Considering price stability as the core Eurosystem mission, our results point out that National Central Banks (NCBs) operate at an average Technical Efficiency of 58.37% which indicates a significant scope for improvement. In addition, we observe an important disparity between NCBs' efficiency scores. We find the efficient units to be the central banks of Spain, Finland, the Netherlands and Lithuania while the most inefficient units are the central banks of Malta and Greece with a technical efficiency of 19.76% and 14.20% respectively. Finally, analyzing the peer units' set, we've reached the conclusion that the central banks of Spain and Finland should be designated as the leading NCBs in the context of a central banking efficiency improvement's project.

Keywords: Efficiency Analysis, Data Envelopment Analysis, Central Banking

JEL Classification: H21, E58, F02