Evaluation and investigation: the determinants of central banking efficiency

¹ Division of International Trade, Institute of Digital Economy, Incheon National University, Incheon 22012, South Korea
² Department of Statistics, Ramanujan School of Mathematical Sciences, Pondicherry University, Puducherry 605014, India

^* Corresponding author: yhahn@inu.ac.kr

Received: 19 November 2020
Accepted: 3 February 2021

Abstract

The stochastic frontier analysis is a comprehensive and accepted approach for analysing efficiency in case of the parametric functional relationship existing between production processes’ inputs with its output. Usually, in the banking industry, the relationship between the user inputs and outputs are non-deterministic. In the present study, an SFA approach is used to estimate the efficiency of top 17 Asian central banks in combining three inputs and one output. Structural equation modelling is applied to examine the impact of the country’s international trade and economic growth on its central bank efficiency. Based on the results, we have observed significant efficiency ranks between the year 2016– 2018. The technical efficiency value estimates by SFA method range from 0.236822 to 0.821864. Our calculations also suggest a positive impact of international trade on central bank efficiency compared to the economic growth of that country.