Scandinavian Working Papers in Economics
Umeå Economic Studies,
Umeå University, Department of Economics
No 733: Why Do Politicians Implement Central Bank Independence Reforms?
Sven-Olov Daunfeldt (), Jörgen Hellström () and Mats Landström ()
Additional contact information
Sven-Olov Daunfeldt: Högskolan i Gävle, Postal: S 801 76 GÄVLE, Sweden
Jörgen Hellström: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Mats Landström: Högskolan i Gävle, Postal: S 801 76 GÄVLE, Sweden
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: Institutional reforms; inflation; time-inconsistency; political stability; probit
34 pages, March 10, 2008
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