Goal-Independent Central Banks: Why Politicians Decide to Delegate
November 1, 2006
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Summary
A motivation for central bank independence (CBI) is that policy delegation helps politicians manage diverse coalitions. This paper develops a model of coalition formation that predicts when delegation will occur. An analysis of policy preferences survey data and CBI indicators supports the predictions. Case studies, drawn from several countries' recent past and the nineteenth-century United States, provide further support. Finally, the model explains why the expected negative relationship between CBI and inflation is not empirically robust: endogenous selection biases the estimated effect towards zero. The data confirm this.
Subject: Banking, Central bank autonomy, Central banks, Inflation, National accounts, Personal income, Prices
Keywords: Africa, Central bank autonomy, Central bank independence, coalition formation, coalition structure, coalition-formation game, inflation, monetary policy, mover accent, Personal income, policy platform, rising prices, treatment effects, WP
Pages:
41
Volume:
2006
DOI:
Issue:
256
Series:
Working Paper No. 2006/256
Stock No:
WPIEA2006256
ISBN:
9781451865165
ISSN:
1018-5941
