Independence, Conservatism and Beyond: Central Bank Design and Central Banker Preferences in Monetary Policy Economics (1981-2019)

Abstract

Using a political economy approach, this paper sheds light on how two factors – central bankers’ preferences and the central bank’s design – progressively assumed a crucial role in the evolution of monetary policy economics in the last four decades. The two factors jointly identify the importance of central bank governance in influencing monetary policy decisions through their interactions with the monetary policy rules, given certain assumptions about how macroeconomic systems work. Moreover, our understanding of the relevance of central bank governance has recently been enriched by applying the behavioural economics perspective.

Keywords: monetary policy, central bank independence, central banker conservatism, monetary policy committees, political economics, behavioural economics

JEL Classification: E50, E52, E58