Working Paper: CEPR ID: DP17802
Authors: Vasso Ioannidou; Sotirios Kokas; Thomas Lambert; Alexander Michaelides
Abstract: Since the 1980s many countries have reformed the institutional framework governing their central banks to increase operational independence. Collecting systematic biographical information, international press coverage, and independent expert opinions, we find that over the same period appointments of central bank governors have become more politically motivated, especially after significant legislative reforms aiming to insulate central banks and their governors from political interference. We also show that politically-motivated appointments reflect lower de facto independence, and are associated with worse inflation and financial stability outcomes. Given the increase in central banks' powers worldwide, our findings inform the debate about their political accountability and credibility.
Keywords: central banking; central bank independence; governor appointment; legislative reform; political connection; inflation; financial stability
JEL Codes: E58; G00; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| de jure CBI (L49) | governor independence index (H77) |
| governor independence index (H77) | political motivations in appointments (D73) |
| politically motivated appointments (D72) | de facto independence (F29) |
| de facto independence (F29) | early dismissals of governors (J63) |
| politically motivated appointments (D72) | inflation (E31) |
| politically motivated appointments (D72) | financial stability (G28) |
| de facto CBI (L59) | inflation (E31) |
| de facto CBI (L59) | financial stability (G28) |