Goal Independent Central Banks: Why Politicians Decide to Delegate

Crowe, Christopher

doi:10.2139/ssrn.1113719

Abstract

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Goal Independent Central Banks: Why Politicians Decide to Delegate

Christopher Crowe

International Monetary Fund (IMF)

March 2008

Paolo Baffi Centre Research Paper No. 2008-10

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.

Number of Pages in PDF File: 35

Keywords: Central bank independence, inflation, coalition formation, treatment effects

JEL Classification: C31, C72, D72, E31, E58

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Date posted: March 28, 2008

Suggested Citation

Crowe, Christopher, Goal Independent Central Banks: Why Politicians Decide to Delegate (March 2008). Paolo Baffi Centre Research Paper No. 2008-10. Available at SSRN: http://ssrn.com/abstract=1113719 or http://dx.doi.org/10.2139/ssrn.1113719

Contact Information

Christopher Crowe (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States