Opportunistic not Optimal Policy published at CPS
19 May 2020
Economists have long argued that central banks ran by technocrats have greater independence from the government. But in many countries, politically experienced central bankers are at the helm, including even highly independent central banks. To explain the level of central bank independence awarded, we develop a formal model where nominating politicians screen central bankers for their political ambitions. We find evidence that the reelection strategy of the nominating politician is an important predictor of the level of central bank independence.