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Goal independent central banks: Why politicians decide to delegate

  • Crowe, Christopher

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. The model also 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.

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Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 24 (2008)
Issue (Month): 4 (December)
Pages: 748-762

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Handle: RePEc:eee:poleco:v:24:y:2008:i:4:p:748-762
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505544

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  11. Hayo, Bernd, 1998. "Inflation culture, central bank independence and price stability," European Journal of Political Economy, Elsevier, vol. 14(2), pages 241-263, May.
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  14. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
  15. 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.
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  18. Milesi-Ferretti, Gian Maria, 1994. "Wage Indexation and Time Consistency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(4), pages 941-50, November.
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