De Facto and De Jure Central Bank Independence

• In Event: The Politics of Central Banking: No more Free Lunches

Abstract

Central bank independence has become a tenet of modern monetary policy-making. Most research assumes that legal independence equates to actual independence. In this paper, we argue that this is too optimistic, in particular in emerging markets. We present a formal model based on the career concerns of central bankers themselves, showing that central banks have almost full independence when global capital markets are in turmoil, but that in tranquil periods, politicians lean on central banks to boost economic growth or when they are electorally weak. We test our predictions on a new data set of public pressure exerted on central banks drawn from text analysis of external party reports that evaluates close to 100 countries over 30 years.

(Manger is the panel organizer so please contact him in case of any questions)

Authors

• Michael A. Gavin, Washington University in St. Louis

• Mark S. Manger, University of Toronto