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Goal independent central banks: Why politicians decide to delegate

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  • Crowe, Christopher

Abstract

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.

Suggested Citation

  • Crowe, Christopher, 2008. "Goal independent central banks: Why politicians decide to delegate," European Journal of Political Economy, Elsevier, vol. 24(4), pages 748-762, December.
    • Handle: RePEc:eee:poleco:v:24:y:2008:i:4:p:748-762
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    References listed on IDEAS

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    More about this item

    Keywords

    C31 C72 D72 E31 E58 Central bank independence Inflation Coalition formation Treatment effects;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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