Goal-Independent Central Banks: Why Politicians Decide to Delegate

Author/Editor:

Christopher W. Crowe

Publication Date:

November 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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. Case studies, drawn from several countries' recent past and the nineteenth-century United States, provide further support. Finally, the model 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.

Series:

Working Paper No. 2006/256

Subject:

Banking Central bank autonomy Central banks Inflation National accounts Personal income Prices

English

Publication Date:

November 1, 2006

ISBN/ISSN:

9781451865165/1018-5941

Stock No:

WPIEA2006256

Pages:

41

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