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Paper Autonomy, Private Ambition: Theory and Evidence Linking Central Bankers' Careers and the Economy
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Career paths and conservatism in the central bank
It is intuitive to most political scientists that we should examine policymakers’ preferences in orderto understand policy outcomes. Yet precisely this question has been overlooked in the study ofcentral banking. After reviewing the context and consequences of this oversight, I present anargument for understanding the preferences of officials through their career backgrounds, whichmay affect both the pre-existing preferences of central bankers and the incentives which facethem.
2.1
Do we really need to study central bank conservatism?
For twenty years, the problem of time inconsistency has dominated the study of monetary pol-icy, suggesting that elected governments will always be vulnerable to the (arguably ultimatelyfutile) temptations of expansionary monetary policy, leading to permanently excessive inflation(Kydland and Prescott 1977, Barro and Gordon 1983). An influential series of models suggests acredibly conservative and independent monetary agent can ameliorate this inflationary bias (Ro-goff 1986, Lohmann 1992). Scholars have measured and policymakers have implemenented centralbank independence, but the other half of the formulation—central bank conservatism—has beenignored in comparative research.
Autonomy is the ability to act on one’s preferences. It tells us nothing about the content of
those preferences. Yet early studies set the precedent of treating CBI as a sufficient measure ofboth autonomy and conservatism (Grilli, Masciandaro and Tabellini 1991; Alesina and Summers1993; and Cukierman, Webb, and Neyapti 1992), and dozens of published works that rely in someway on CBI have followed this example. This modeling choice is an oversimplification. It cannotbe justified by the explanatory power of CBI taken alone, since even the best CBI measures failto explain inflation performance in models with plausible controls (Campillo and Miron 1997)or in developing countries generally (Cukierman, Webb, and Neyapti 1992). Moreover, no studyfinds the expected positive relation between CBI and the variance of unemployment, suggestingthat CBI is an incomplete measure of nonaccommodation. Finally, and unsurprisingly, effortsto disaggregate CBI into separate measures of independence and conservatism fail to find anyadded effect of statutory injuctions to pursue price stability (Berger, de Haan, and Eijffinger 2001review the evidence). Policy preferences run deeper than unenforceable commands, and only anapproach focused on the agents themselves will uncover the roots of central bankers’ behavior.
Excepting studies of partisan appointment, however, the central bankers themselves have
been ignored.
1
Perhaps stereotypes of conservative, financial-sector-trained central bankers lead
many to assume that these agents, and hence central bank conservatism itself, are invariant acrosstime and space. But the stereotype is misleading: central bankers hail from a variety of careers,of which private finance is not even the most common (see Section 4.2). As I will argue, differingbackgrounds may even form the basis for a measure of central bank conservatism.
A tendency to accord central bankers with remarkable self-restraint may also contribute to
1
Several authors have examined the effect of partisanship in the appointment of central bankers, particularly
in the US (Chappell, Havrilesky, and MacGregor 1993), but also in Germany (Berger and Woitek 1999). Thesestudies generally find that more conservative parties appoint central bankers who pursue more hawkish monetarypolicy.
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| | Authors: Adolph, Christopher. |
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2
Career paths and conservatism in the central bank
It is intuitive to most political scientists that we should examine policymakers’ preferences in order
to understand policy outcomes. Yet precisely this question has been overlooked in the study of
central banking. After reviewing the context and consequences of this oversight, I present an
argument for understanding the preferences of officials through their career backgrounds, which
may affect both the pre-existing preferences of central bankers and the incentives which face
them.
2.1
Do we really need to study central bank conservatism?
For twenty years, the problem of time inconsistency has dominated the study of monetary pol-
icy, suggesting that elected governments will always be vulnerable to the (arguably ultimately
futile) temptations of expansionary monetary policy, leading to permanently excessive inflation
(Kydland and Prescott 1977, Barro and Gordon 1983). An influential series of models suggests a
credibly conservative and independent monetary agent can ameliorate this inflationary bias (Ro-
goff 1986, Lohmann 1992). Scholars have measured and policymakers have implemenented central
bank independence, but the other half of the formulation—central bank conservatism—has been
ignored in comparative research.
Autonomy is the ability to act on one’s preferences. It tells us nothing about the content of
those preferences. Yet early studies set the precedent of treating CBI as a sufficient measure of
both autonomy and conservatism (Grilli, Masciandaro and Tabellini 1991; Alesina and Summers
1993; and Cukierman, Webb, and Neyapti 1992), and dozens of published works that rely in some
way on CBI have followed this example. This modeling choice is an oversimplification. It cannot
be justified by the explanatory power of CBI taken alone, since even the best CBI measures fail
to explain inflation performance in models with plausible controls (Campillo and Miron 1997)
or in developing countries generally (Cukierman, Webb, and Neyapti 1992). Moreover, no study
finds the expected positive relation between CBI and the variance of unemployment, suggesting
that CBI is an incomplete measure of nonaccommodation. Finally, and unsurprisingly, efforts
to disaggregate CBI into separate measures of independence and conservatism fail to find any
added effect of statutory injuctions to pursue price stability (Berger, de Haan, and Eijffinger 2001
review the evidence). Policy preferences run deeper than unenforceable commands, and only an
approach focused on the agents themselves will uncover the roots of central bankers’ behavior.
Excepting studies of partisan appointment, however, the central bankers themselves have
been ignored.
1
Perhaps stereotypes of conservative, financial-sector-trained central bankers lead
many to assume that these agents, and hence central bank conservatism itself, are invariant across
time and space. But the stereotype is misleading: central bankers hail from a variety of careers,
of which private finance is not even the most common (see Section 4.2). As I will argue, differing
backgrounds may even form the basis for a measure of central bank conservatism.
A tendency to accord central bankers with remarkable self-restraint may also contribute to
1
Several authors have examined the effect of partisanship in the appointment of central bankers, particularly
in the US (Chappell, Havrilesky, and MacGregor 1993), but also in Germany (Berger and Woitek 1999). These
studies generally find that more conservative parties appoint central bankers who pursue more hawkish monetary
policy.
3
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