35 Pages Posted: 28 Mar 2008
Date Written: March 2008
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.
Keywords: Central bank independence, inflation, coalition formation, treatment effects
JEL Classification: C31, C72, D72, E31, E58
Suggested Citation: 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: https://ssrn.com/abstract=1113719 or http://dx.doi.org/10.2139/ssrn.1113719