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Replacing a “Disobedient” Central Bank Governor with a “Docile” One: A Novel Measure of Central Bank Independence and Its Effect on Inflation
Author(s) -
VULETIN GUILLERMO,
ZHU LING
Publication year - 2011
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2011.00422.x
Subject(s) - governor , central government , independence (probability theory) , inflation (cosmology) , government (linguistics) , yardstick , central bank , economics , empirical evidence , monetary economics , monetary policy , political science , public administration , local government , engineering , linguistics , statistics , physics , philosophy , mathematics , geometry , epistemology , theoretical physics , aerospace engineering
This paper identifies two mechanisms that empirical papers on central bank independence assume to be embedded in the yardstick measure of turnover rate of central bank governor: (i) the removal of a governor who is perceived as a challenger by the government and (ii) whether his/her replacement is an ally of the government. We identify the first mechanism with premature exits of central bankers and the second by examining whether or not the incoming governor is drawn from the ranks of the executive branch of the government. We find that only premature exits and replacements with government allies increase inflation.