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Optimal or Opportunistic Policy Discretion? Explaining Central Bank Independence in Post-Communist Countries

Monday October 30, 2017, at 13:30
Room 24.019 (Ground Floor). Mercè Rodoreda building 24
Research seminar

Nicole Rae Baerg (University of Essex)

Authors: Nicole Rae Baerg, Julia Gray, and Jakob Willisch

The classic literature on central bank independence (CBI) associates a rise in CBI with the delegation of monetary policy to technocrats in order to solve commitment issues. Puzzling, however, is that in many countries, we still observe political appointments to central banks, even among countries with high levels of CBI. In this paper, we provide a formal theory that explains why this happens, using a model where incumbents screen domestic political rivals. We test our argument using new biographical data of policymakers and an index of central bank independence on a sample of 29 post-communist transition countries between 1990 and 2012. We find evidence that while political appointments are associated with lower CBI when electoral competition is low. When electoral competition is high, politically experienced governors are granted similar levels of policy autonomy as their technocratic counterparts.

Starting October 2016, Nicole Rae Baerg is a Lecturer at the Department of Government at the University of Essex. Previously, she was an Assistant Professor of International Organizations at the School of Social Sciences, University of Mannheim. She is also affiliated to the Collaborative Research Center "Political Economy of Reforms'' (SFB 884) at the University of Mannheim. Her research areas include the political economy of central banking, fiscal and monetary policies, public opinion, and immigration. She is also interested in political textual analysis and helps develop the Political Text Analysis Network at the University of Mannheim.