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Allies or commitment devices? A model of appointments to the Federal Reserve
Author(s) -
Schnakenberg Keith E.,
Turner Ian R.,
UribeMcGuire Alicia
Publication year - 2017
Publication title -
economics and politics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.822
H-Index - 45
eISSN - 1468-0343
pISSN - 0954-1985
DOI - 10.1111/ecpo.12089
Subject(s) - legislature , limiting , ideal (ethics) , economics , face (sociological concept) , central bank , contrast (vision) , monetary policy , political science , political economy , public administration , public economics , macroeconomics , sociology , law , mechanical engineering , social science , artificial intelligence , computer science , engineering
Abstract We present a model of executive‐legislative bargaining over appointments to independent central banks in the face of an uncertain economy with strategic economic actors. The model highlights the contrast between two idealized views of Federal Reserve appointments. In one view, politicians prefer to appoint conservatively biased central bankers to overcome credible commitment problems that arise in monetary policy. In the other, politicians prefer to appoint allies, and appointments are well described by the spatial model used to describe appointments to other agencies. Both ideals are limiting cases of our model, which depend on the level of economic uncertainty. When economic uncertainty is extremely low, politicians prefer very conservative appointments. When economic uncertainty increases, politicians’ prefer central bank appointees closer to their own ideal points. In the typical case, the results are somewhere in between: equilibrium appointments move in the direction of politician's preferences but with a moderate conservative bias.