(In)dependent Central Banks

Vasso Ioannidou, Sotirios Kokas, Thomas Lambert and Alexander Michaelides

No 17802, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Since the 1980s many countries have reformed the institutional framework governing their central banks to increase operational independence. Collecting systematic biographical information, international press coverage, and independent expert opinions, we find that over the same period appointments of central bank governors have become more politically motivated, especially after significant legislative reforms aiming to insulate central banks and their governors from political interference. We also show that politically-motivated appointments reflect lower de facto independence, and are associated with worse inflation and financial stability outcomes. Given the increase in central banks' powers worldwide, our findings inform the debate about their political accountability and credibility.

Keywords: Central banking; Central bank independence; Governor appointment; Legislative reform; Political connection; Inflation; Financial stability (search for similar items in EconPapers)
JEL-codes: E58 G00 P16 (search for similar items in EconPapers)
Date: 2023-01
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