Price Stability and Central Bank Independence: Discipline, Credibility, and Democratic Institutions

Bodea, Cristina; Hicks, Raymond

doi:10.1017/s0020818314000277

Cited by 243 publications

(172 citation statements)

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“… Trade openness, measured as the ratio of exports and imports to GDP (Source: World Bank);  A dummy indicating countries hit by the financial crisis, according to the database of Laeven and Valencia (2013);  A dummy indicating inflation targeters, based on Hammond (2012);  A dummy for countries with flexible exchange rates, according to the IMF Annual Report on Exchange Arrangements and Exchange Restrictions;  The level of central bank independence in 2010, according to Bodea and Hicks, (2015); and  The change in their measure of central bank independence between 1995-2007 and 2008-2010. 7 Limited as we are by the small sample size, we first run univariate regressions (reported in Table A2 in the Appendix).…”

Section: Notesmentioning

confidence: 99%

Necessity As the Mother of Invention Monetary Policy after the Crisis

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in Working Paper SeriesNecessity as the mother of invention: monetary policy after the crisis Alan Blinder, Michael Ehrmann, Jakob de Haan, David-Jan JansenDisclaimer: This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. No 2 / 2017MONETARY POLICY AFTER THE CRISIS Abstract:We ask whether recent changes in monetary policy due to the financial crisis will be temporary or permanent. We present evidence from two surveys-one of central bank governors, the other of academic specialists. We find that central banks in crisis countries are more likely to have resorted to new policies, to have had discussions about mandates, and to have communicated more. But the thinking has changed more broadly-for instance, central banks in non-crisis countries also report having implemented macro-prudential measures. Overall, we expect central banks in the future to have broader mandates, use macro-prudential tools more widely, and communicate more actively than before the crisis. While there is no consensus yet about the usefulness of unconventional monetary policies, we expect most of them will remain in central banks' toolkits, as governors who gain experience with a particular tool are more likely to assess that tool positively.

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Section: Notesmentioning

confidence: 99%

Necessity As the Mother of Invention Monetary Policy after the Crisis

2016

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“…The most important objection is that a high tenure of the central bank governor could also reflect that the governor behaves in accordance with the wishes of the government. Bodea and Hicks (2015) have expanded the Cukierman et al (1992) index of central bank independence for 78 countries from the end of the Bretton Woods system until 2010. The result is an original data set that codes independence annually and covers legislation changes in the last twenty-five years.…”

Section: Has Central Bank Independence Changed Since the Crisis?mentioning

confidence: 99%

The Politics of Central Bank Independence

Haan

Eijffinger

2016

SSRN Journal

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This paper reviews recent research on the political economy of monetary policy-making, both by economists and political scientists. The traditional argument for central bank independence (CBI) is based on the desire to counter inflationary biases. However, studies in political science on the determinants of central bank independence suggest that governments may choose to delegate monetary policy in order to detach it from political debates and power struggles. This argument would be especially valid in countries with coalition governments, federal structures and strongly polarized political systems. The recent financial crisis has changed the role of central banks as evidenced by the large set of new unconventional monetary and macro-prudential policy measures. But financial stability and unconventional monetary policies have much stronger distributional consequences than conventional monetary policies and this has potential implications for the central bank's independence. It may also have changed the regime from monetary dominance to fiscal dominance. However, our results do not suggest that CBI has been reduced since the Great Financial Crisis. This holds both for legal measures of CBI and the turnover rate of central bank governors.

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“…The CBI scores of Sadeh (2010) and Bodea and Hicks (2014) are both based on a weighted calculation of a list of indicators. These indicators fall into four categories that include Chief Executive Officer, Policy Formation, Objectives, and Limitations on Lending to the Government.…”

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“…Although for the years 1973-2010 we rely on Bodea and Hicks (2014) because their data is more up-todate and comprehensive, it is worth mentioning that Sadeh (2010) and Bodea and Hicks (2014) do not always agree on the levels of CBI. For example, Sadeh's data suggests that the highest levels of CBI were scored by Estonia in the 1990s (CBI=77.82), while Bodea and Hicks (2014) 1993 and 1999 all countries running up to the Euro reach levels of CBI up to 92 percent, and that from 1999 onwards all EMU countries are assigned a CBI score of 86 percent.…”

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Smoke with Fire: Financial Crises, Institutional Reform, and the Future of EU Democracy

Genovese

Schneider

2012

SSRN Journal

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The handling of the recent sovereign debt crisis in Europe has raised fears that decision making among European countries has become less democratic, and that technocrats now call the shots in the European Union (EU). In this article we confront this view by proposing an alternative theory for the effects of financial crises in this supranational organization. We argue that national parliaments in Europe refrain from demanding control of EU institutions during a financial crisis if they think their request may undermine the credibility of governments in other member states their policies depend on. A crisis should then depress demand for political reforms in monetarily independent countries that are in financial trouble, but not in countries whose fiscal and monetary status rely on the economic reputation of the Union as a whole. We show evidence in support of our theory with qualitative evaluations and econometric regressions, using different types of data for the years between 1950 and 2010. Our findings let us reconsider that the recent Eurocrisis has depleted the power of the European legislatures. * Stanford University; genovese.federica@gmail.com † University of Konstanz; gerald.schneider@uni-konstanz.de. Previous versions of this paper have been presented at the meeting of the 2012 German Political Science Association (DVWP) at the University of Tübingen and at research seminars at the Free University Berlin, Leiden University, WZB, Tel Aviv University and the Institute for Advance Studies Toulouse. We thank the participants and Zareh Asatryan, Simon Hix, Martin Höppner, Kai Konrad, Rhea Molato, John Roemer, Thomas Sattler, Tal Sadeh, Enrico Spolaore, Aneta Spendzharova, Bernard Steunenberg, Jean Tirole and Vera Tröger for constructive comments. We are also grateful to Alexander Bräunig for research assistance and Cristina Bodea, Tal Sadeh and Thomas Winzen for sharing data. Replication data and files will be found at the homepage of the first author. The political economy literature disagrees over the conditions under which a country introduces political reforms following a severe economic shock. A main proposition within this body of research boils down to the expectation that governments do not launch policy reforms without the pressure from crises. Rodrik (1996: 27) Addressing the question whether 'smoke follows fires' in light of these concerns, this paper examines the institutional consequences of financial collapses in Europe. We present an argument that links together lessons from the literature on the effects of crises on policy, coalition building and unanimity voting, seeking to explain the trajectory of supranational decision making in the continent from the post-war years until today. On the one hand, remarkable integration and progressive legalization have occurred in the aftermath of crises in modern Europe. This observation leads us to believe the EU is a supra-nationalist democracy with the capacity to introduce institutional changes that are more universally beneficial than the status...

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Price Stability and Central Bank Independence: Discipline, Credibility, and Democratic Institutions

Cited by 243 publications

References 59 publications

Necessity As the Mother of Invention Monetary Policy after the Crisis

Necessity As the Mother of Invention Monetary Policy after the Crisis

The Politics of Central Bank Independence

Smoke with Fire: Financial Crises, Institutional Reform, and the Future of EU Democracy

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