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Why Do Politicians Implement Central Bank Independence Reforms?

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Author Info
Daunfeldt, Sven-Olov () (The Ratio Institute)
Hellström, Jörgen (Department of Economics, Umeå University)
Landström, Mats (Department of Economics, University of Gävle)

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Abstract

This paper is a first empirical attempt to investigate why politicians around the world have chosen to give up power to independent central banks, thereby reducing their ability to fine-tune the economy. A new data-set covering 132 countries, of which 89 countries had implemented such reforms, was collected. Politicians in non-OECD countries were more likely to delegate power to independent central banks if their country has been characterized by a high variability in historical inflation and if they faced a high probability of being replaced. No such effects were found for OECD-countries.

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Paper provided by The Ratio Institute in its series Ratio Working Papers with number 143.

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Length: 43 pages
Date of creation: 07 Oct 2009
Date of revision:
Handle: RePEc:hhs:ratioi:0143

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Related research
Keywords: inflation; institutional reforms; monetary policy; time-inconsistency;

Other versions of this item:

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
P48 - Economic Systems - - Other Economic Systems - - - Other Economic Systems: Political Economy; Legal Institutions; Property Rights

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Eijffinger, Sylvester & Schaling, Eric & Hoeberichts, Marco, 1998. "Central bank independence: A sensitivity analysis," European Journal of Political Economy, Elsevier, vol. 14(1), pages 73-88, February. [Downloadable!] (restricted)
  2. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
  3. Forder, James, 1996. "On the Assessment and Implementation of 'Institutional' Remedies," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 39-51, January. [Downloadable!] (restricted)
  4. Hayo, Bernd, 1998. "Inflation culture, central bank independence and price stability," European Journal of Political Economy, Elsevier, vol. 14(2), pages 241-263, May. [Downloadable!] (restricted)
  5. Cukierman, Alex & Webb, Steven B, 1995. "Political Influence on the Central Bank: International Evidence," World Bank Economic Review, Oxford University Press, vol. 9(3), pages 397-423, September.
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  6. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank. [Downloadable!]
  7. McCallum, Bennett T., 1997. "Crucial issues concerning central bank independence," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 99-112, June. [Downloadable!] (restricted)
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  8. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
    Other versions:
  9. Daunfeldt, Sven-Olov & de Luna, Xavier, 2002. "Central Bank Independence and Price Stability: Evidence from 23 OECD-countries," UmeÃ¥ Economic Studies 589, Umeå University, Department of Economics, revised 12 Jun 2003. [Downloadable!]
  10. Cukierman, Alex & Miller, Geoffrey P. & Neyapti, Bilin, 2002. "Central bank reform, liberalization and inflation in transition economies--an international perspective," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 237-264, March. [Downloadable!] (restricted)
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  11. de Haan, Jakob & van 't Hag, Gert Jan, 1995. " Variation in Central Bank Independence across Countries: Some Provisional Empirical Evidence," Public Choice, Springer, vol. 85(3-4), pages 335-51, December.
  12. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, Oxford University Press, vol. 6(3), pages 353-98, September.
  13. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June. [Downloadable!] (restricted)
  14. Bagheri, Fatholla M & Habibi, Nader, 1998. " Political Institutions and Central Bank Independence: A Cross-Country Analysis," Public Choice, Springer, vol. 96(1-2), pages 187-204, July. [Downloadable!] (restricted)
  15. Daunfeldt, Sven-Olov & de Luna, Xavier, 2001. "The Efficacy and Cost of Regime Shifts in Inflation Policies--Evidence from New Zealand and Sweden," Applied Economics, Taylor and Francis Journals, vol. 33(2), pages 217-24, February. [Downloadable!] (restricted)
    Other versions:
  16. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc. [Downloadable!]
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