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No 13:
Why Do Politicians Implement Central Bank Independence Reforms?

Sven-Olov Daunfeldt (), Jörgen Hellström () and Mats Landström ()

Abstract: It is something of a puzzle that politicians around the world have chosen to give up power to independent central banks, thereby reducing their possibilities to fine-tune the economy. In this paper the determinants of central bank independence (CBI) reforms are studied using a new data set on the possible event of such reforms in 119 countries. According to the data, as much as 81 countries had implemented CBI-reforms during the study period. The results indicate, moreover, that policymakers are more likely to delegate power to independent central banks when the foreign debt is relatively high. In non-OECD countries, the likelihood of a CBI-reform also seems to increase when policymakers face a high probability of getting replaced.

Keywords: Central bank independence; political economy; (follow links to similar papers)

JEL-Codes: E42; E58; E61; P16; (follow links to similar papers)

34 pages, February 29, 2008

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