A Paradox of Bureaucratic Autonomy: Central Bank Legitimacy, Autonomy and Commitment

• In Event: 355 - Section on Economic Sociology Roundtable Session (one-hour).
  In Refereed Roundtable: Table 02. Varieties of Institutional Logics

Abstract

Inflation targeting is the latest development in an iterative series of institutional attempts to insulate monetary policy from electoral politics. While standard theories of the political economy of money rest on the paradigm of credible commitments, I adopt an alternative approach based on a sociological approach to organizational legitimacy. Institutional mechanisms of central bank commitment are only effective to the extent that political leaders accept the legitimacy of autonomous central banks. This gives rise to a paradox of bureaucratic autonomy: institutional constraint on executives is conditional on acceptance of these constraints. I explore this paradox through an examination of the political economy of commitment to transparent inflation targets in developing countries. Inflation targets were adopted in Mexico, whereas commitment was proposed but rejected in Argentina. I suggest that central banks have committed to targets when they suffer from deficits of organizational legitimacy and when their embeddedness in bureaucratic networks within the state facilitates inter-organizational elite collective action. In contrast, commitment is undermined by the absence of elite structures that facilitate elite cooperation.

Author

• Tod Stewart Van Gunten, Juan March Institute