Balancing Act or Policy Pitfall? The Effects of Central Bank Dual Mandates

Ana Carolina Garriga and Cesar M. Rodriguez

MPRA Paper from University Library of Munich, Germany

Abstract: Central banks are often tasked with steering economies toward goals that exceed price stability, but the consequences of broader mandates are understudied. This paper focuses the case of central banks that have the explicit mandate of promoting both price stability and full employment (“dual mandates”). We explain how dual mandate adop- tion generates institutional constraints that increase inflation without delivering meaningful gains in employment. We test our theory using original data on central bank mandates in 176 countries from 1985 to 2023. The empirical analysis addresses challenges of staggered adoption and treatment heterogeneity through entropy balancing, and generalized synthetic control approaches focusing on countries with clean adoption patterns. We find that dual mandate adoption raises inflation by about eight percentage points relative to inflation-only mandates, with effects persisting over time. In contrast, we do not find systematic long-term employment benefits. These results suggest that broader central bank mandates may weaken the effectiveness of monetary policy and increase the risk of politicization. This has im- plications for debates over institutional design, delegation, and the limits of technocratic governance.

Keywords: Central bank independence; Central banks; Dual mandate; Employment; Inflation; Mandates (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2025-08-22
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:125925

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