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Replacing a "Disobedient" Central Bank Governor with a "Docile" One: A Novel Measure of Central Bank Independence and Its Effect on Inflation

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  • GUILLERMO VULETIN
  • LING ZHU

Abstract

This paper identifies two mechanisms that empirical papers on central bank independence assume to be embedded in the yardstick measure of turnover rate of central bank governor: (i) the removal of a governor who is perceived as a challenger by the government and (ii) whether his/her replacement is an ally of the government. We identify the first mechanism with premature exits of central bankers and the second by examining whether or not the incoming governor is drawn from the ranks of the executive branch of the government. We find that only premature exits and replacements with government allies increase inflation.
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  • Guillermo Vuletin & Ling Zhu, 2011. "Replacing a "Disobedient" Central Bank Governor with a "Docile" One: A Novel Measure of Central Bank Independence and Its Effect on Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(6), pages 1185-1215, September.
  • Handle: RePEc:mcb:jmoncb:v:43:y:2011:i:6:p:1185-1215
    DOI: j.1538-4616.2011.00422.x
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    2. Garriga, Ana Carolina & Rodriguez, Cesar M., 2020. "More effective than we thought: Central bank independence and inflation in developing countries," Economic Modelling, Elsevier, vol. 85(C), pages 87-105.
    3. Belke, Ansgar & Freytag, Andreas & Keil, Jonas & Schneider, Friedrich, 2014. "The credibility of monetary policy announcements: Empirical evidence for OECD countries since the 1960s," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 217-227.
    4. Qureshi, Irfan, 2015. "Monetary Policy Shifts and Central Bank Independence," MPRA Paper 81646, University Library of Munich, Germany, revised Sep 2017.
    5. Berggren, Niclas & Daunfeldt, Sven-Olov & Hellström, Jörgen, 2014. "Social trust and central-bank independence," European Journal of Political Economy, Elsevier, vol. 34(C), pages 425-439.
    6. Carlos A. Vegh & Luis Morano & Diego Friedheim & Diego Rojas, 2017. "Between a Rock and a Hard Place," World Bank Other Operational Studies, The World Bank, number 28443.
    7. Strong, Christine & Yayi, Constant, 2021. "Central bank independence, fiscal deficits and currency union: Lessons from Africa," Journal of Macroeconomics, Elsevier, vol. 68(C).

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