Allies or Commitment Devices? A Model of Appointments to the Federal Reserve

Accepted for publication at Economics and Politics

24 Pages Posted: 20 Jul 2013 Last revised: 9 Feb 2017

See all articles by Keith E. Schnakenberg

Keith E. Schnakenberg

Washington University in St. Louis - Department of Political Science

Ian R. Turner

Yale University

Alicia Uribe

University of Illinois at Urbana-Champaign - Department of Political Science

Multiple version iconThere are 2 versions of this paper

Date Written: January 31, 2017

Abstract

We present a model of executive-legislative bargaining over appointments to independent central banks in the face of an uncertain economy with strategic economic actors. The model highlights the contrast between two idealized views of Federal Reserve appointments. In one view, politicians prefer to appoint conservatively biased central bankers to overcome credible commitment problems that arise in monetary policy. In the other, politicians prefer to appoint allies, and appointments are well described by the spatial model used to describe appointments to other agencies. Both ideals are limiting cases of our model, which depend on the level of economic uncertainty. When economic uncertainty is extremely low, politicians prefer very conservative appointments. When economic uncertainty increases, politicians' prefer central bank appointees closer to their own ideal points. In the typical case, the results are somewhere in between: equilibrium appointments move in the direction of politician's preferences but with a moderate conservative bias.

Keywords: Central banks, appointments, formal theory, bargaining, spatial model

JEL Classification: C72, C78, E50

Suggested Citation

Schnakenberg, Keith E. and Turner, Ian R. and Uribe, Alicia, Allies or Commitment Devices? A Model of Appointments to the Federal Reserve (January 31, 2017). Accepted for publication at Economics and Politics. Available at SSRN: https://ssrn.com/abstract=2295666 or http://dx.doi.org/10.2139/ssrn.2295666

Keith E. Schnakenberg

Washington University in St. Louis - Department of Political Science ( email )

One Brookings Drive
One Brookings Drive
St. Louis, MO 63130
United States

Ian R. Turner (Contact Author)

Yale University ( email )

115 Prospect Street
New Haven, CT 06511
United States

Alicia Uribe

University of Illinois at Urbana-Champaign - Department of Political Science ( email )

702 S. Wright Street
Urbana, IL 61801
United States
217-244-0725 (Phone)

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