Hostname: page-component-6766d58669-tq7bh Total loading time: 0 Render date: 2026-05-21T08:44:05.175Z Has data issue: false hasContentIssue false
  • English
  • Français

A Political Explanation of Variations in Central Bank Independence

Published online by Cambridge University Press:  01 August 2014

William Bernhard
William Bernhard*
Affiliation:
University of Illinoisat Urbana-Champaign
Get access Rights & Permissions [Opens in a new window]

Abstract

Although central banks possess a similar function across the industrial democracies, their institutional structures—their levels of independence—differ greatly. My explanation of this variation emphasizes the informational asymmetries of monetary policymaking. Government ministers have informational advantages in the policy process, potentially creating conflicts with backbench legislators and, in a multiparty government, coalition partners. An independent central bank can help alleviate these conflicts. Politicians will choose an independent bank (1) if government ministers, party legislators, and coalition partners have different monetary policy incentives and (2) if government ministers fear that party legislators and coalition partners will withdraw their support over a policy dispute. I statistically test the argument against the cross-national variation of central bank institutions. I also use the theoretical framework to examine episodes of institutional choice and reform in Germany, Britain, and Italy.

Information

Type
Articles
Information
American Political Science Review , Volume 92 , Issue 2 , June 1998 , pp. 311 - 327
Copyright
Copyright © American Political Science Association 1998

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

REFERENCES

Achen, Christopher. 1982. Interpreting and Using Regression. Beverly Hills, CA: Sage.Google Scholar
Aldrich, John H. 1995. Why Parties? The Origin and Transformation of Political Parties in America. Chicago: University of Chicago Press.Google Scholar
Alesina, Alberto. 1989. “Inflation, Unemployment, and Politics in Industrial Democracies.” Economic Policy 8(Spring):55–98.Google Scholar
Alesina, Alberto, and Rosenthal, Howard. 1995. Partisan Politics, Divided Government, and the Economy. New York: Cambridge University Press.CrossRefGoogle Scholar
Alesina, Alberto, and Sachs, Jeffrey. 1988. “Political Parties and the Business Cycle in the United States: 1948–1984.” Journal of Money, Credit, and Banking 20(1):63–82.Google Scholar
Alesina, Alberto, and Summers, Lawrence. 1993. “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence.” Journal of Money, Credit, and Banking 25(2):151–62.Google Scholar
Alford, Robert. 1963. Party and Society: The Anglo-American Democracies. Chicago: Rand MacNally.Google Scholar
Austen-Smith, David, and Banks, Jeffrey. 1990. “Stable Governments and the Allocation of Portfolios.” American Political Science Review 84(3):891–906.Google Scholar
Banaian, King, Laney, Leroy, and Willett, Thomas. 1983. “Central Bank Independence: An International Comparison.” Economic Review: Federal Reserve Bank of Dallas (March):1–13.Google Scholar
Bade, Robert, and Parkin, Michael. 1982. “Central Bank Laws and Monetary Policy.” University of Western Ontario. Typescript.Google Scholar
Beck, Nathaniel. 1987. “Elections and the Fed: Is There a Political Monetary Cycle?“ American Journal of Political Science 31(1): 194–216.Google Scholar
Belsley, David A., Kuh, Edwin, and Welsch, Roy E.. 1980. Regression Diagnostics: Identifying Influential Data and Sources of Collinearity. New York: John Wiley.Google Scholar
Bollen, Kenneth, and Jackman, Robert. 1990. “Regression Diagnostics: An Expository Treatment of Outliers and Influential Cases.” In Modern Methods of Data Analysis, ed. Fox, John and Long, J. Scott. Newbury Park, CA: Sage.Google Scholar
Budge, Ian, and Farlie, Dennis. 1983. “Party Competition—Selective Emphasis or Direct Confrontation? An Alternative View with Data.” In Western European Party Systems: Continuity and Change, ed. Daadler, Hans and Mair, Peter. Beverly Hills, CA: Sage.Google Scholar
Burdekin, Richard, and Willett, Thomas. 1991. “Central Bank Reform: The Federal Reserve in International Perspective.” Public Budgeting and Financial Management 3(3):531–51.Google Scholar
Calvert, Randall L., McCubbins, Mathew D., and Weingast, Barry R.. 1989. “A Theory of Political Control and Agency Discretion.” American Journal of Political Science 33(3):588–611.Google Scholar
Cameron, David. 1984. “Social Democracy, Corporatism, Labour Quiescence and the Representation of Economic Interest in Advanced Capitalist Society.” In Order and Conflict in Contemporary Capitalism, ed. Goldthorpe, John H.. Oxford: Clarendon.Google Scholar
Clark, William Robert. 1992. “Institutional Choice as Nested Games: Central Bank Independence in Developing Countries.” Presented at the annual meetings of the American Political Science Association, San Francisco, CA.Google Scholar
Cook, R. Dennis, and Weisberg, Sanford. 1983. “Diagnostics for Heteroskedasticity in Regression.” Biometrika 70(1):1–10.Google Scholar
Cox, Gary, and McCubbins, Mathew D.. 1993. Legislative Leviathan: Party Government in the House. Berkeley: University of California Press.Google Scholar
Cukierman, Alex. 1992. Central Bank Strategy, Credibility, and Independence: Theory and Evidence. Cambridge: MIT Press.Google Scholar
Cukierman, Alex, Webb, Steven B., and Neyapti, Bilin. 1992. “Measuring the Independence of Central Banks and Its Effect on Policy Outcomes.” World Bank Economic Review 6(3):353–98.Google Scholar
Delia Sala, Vincent. 1988. “The Italian Budgetary Process: Political and Institutional Constraints.” West European Politics 11(3):110–25.Google Scholar
Fair, Don. 1979. “The Independence of Central Banks.” The Banker 129(October):31–41.Google Scholar
Ferejohn, John, and Shipan, Charles. 1990. “Congressional Influence on Bureaucracy.” Journal of Law, Economics, and Organization 6(1):1–20.Google Scholar
Friedman, Milton. 1968. “The Role of Monetary Policy.” American Economic Review 58(1):1–17.Google Scholar
Garrett, Geoffrey. 1995. “Capital Mobility, Trade, and the Domestic Politics of Economic Policy.” International Organization 49(4):657–87.Google Scholar
Goodman, John B. 1991. “The Politics of Central Bank Independence.” Comparative Politics 23(3):329–49.Google Scholar
Goodman, John B. 1992. Monetary Sovereignty: The Politics of Central Banking in Western Europe. Ithaca, NY: Cornell University Press.Google Scholar
Granato, Jim, Inglehart, Ronald, and Leblang, David. 1996. “The Effect of Cultural Values on Economic Development: Theory, Hypotheses, and Some Empirical Tests.” American Journal of Political Science 40(3):607–31.CrossRefGoogle Scholar
Granato, Jim, and Suzuki, Mitoshi. 1996. “The Use of the Encompassing Principle to Resolve Empirical Controversies in Voting Behavior: An Application to Voter Rationality in Congressional Elections.” Electoral Studies 15(3):383–98.CrossRefGoogle Scholar
Grilli, Vittorio, Masciandaro, Donato, and Tabellini, Guido. 1991. “Political and Monetary Institutions and Public Finance Policies in the Industrialized Democracies.” Economic Policy lO(October): 342–92.Google Scholar
Hall, Peter. 1986. Governing the Economy: The Politics of State Intervention in Britain and France. New York: Oxford University Press.Google Scholar
Hammond, Thomas, and Knott, Jack. 1993. “Presidential Power, Congressional Dominance, and Bureaucratic Autonomy.” Michigan State University. Typescript.Google Scholar
Havrilesky, Thomas. 1987. “A Partisanship Theory of Fiscal and Monetary Regimes.” Journal of Money, Credit, and Banking 20(3):308–25.Google Scholar
Havrilesky, Thomas. 1993. The Political Pressures on American Monetary Policy. Norwell, MA: Kluwer Academic Publishers.Google Scholar
Havrilesky, Thomas. 1994. “The Political Economy of Monetary Policy.” European Journal of Political Economy 10(1):111–34.Google Scholar
Havrilesky, Thomas, and Granato, Jim. 1993. “Determinants of Inflationary Performance: Corporatist Structure vs. Central Bank Autonomy.” Public Choke 76(3):249–61.CrossRefGoogle Scholar
Henning, C. Randall. 1994. Currencies and Politics in the United States, Germany, and Japan. Washington, DC: Institute for International Economics.Google Scholar
Hibbs, Douglas. 1987. The American Political Economy. Cambridge: Harvard University Press.Google Scholar
Huber, John. 1996. “The Vote of Confidence in Parliamentary Democracies.” American Political Science Review 90(2):269–82.Google Scholar
Jackman, Robert. 1987. “The Politics of Economic Growth in Industrialized Democracies, 1974–1980.” Journal of Politics 49(1): 242–56.Google Scholar
Kaltenthaler, Karl. 1996. “The Restructuring of the German Bundesbank: The Politics of Institutional Change.” German Politics and Society 14(4):23–48.Google Scholar
Keech, William. 1995. Economic Politics: The Costs of Democracy. New York: Cambridge University Press.Google Scholar
Kennedy, Ellen. 1991. The Bundesbank: Germany's Central Bank in the International Monetary System. London: Pinter.Google Scholar
Keohane, Robert, and Milner, Helen, eds. 1996. Internationalization and Domestic Politics. New York: Cambridge University Press.Google Scholar
Kettl, Donald. 1986. Leadership at the Fed. New Haven: Yale University Press.Google Scholar
Kirchheimer, Otto. 1966. “The Transformation of Western European Party Systems.” In Political Parties and Political Development, ed. LaPalombara, Joseph and Weiner, Myron. Princeton: Princeton University Press.Google Scholar
Krehbiel, Keith. 1991. Information and Legislative Organization. Ann Arbor: University of Michigan Press.Google Scholar
Laver, Michael, and Schofield, Norman. 1990. Multiparty Government: The Politics of Coalition in Europe. New York: Oxford University Press.Google Scholar
Laver, Michael, and Shepsle, Kenneth, eds. 1994. Cabinet Ministers and Parliamentary Government. Cambridge: Cambridge University Press.Google Scholar
Laver, Michael, and Shepsle, Kenneth. 1996. Making and Breaking Governments. Cambridge: Cambridge University Press.Google Scholar
Lewis-Beck, Michael S. 1988. Economics and Elections: The Major Western Democracies. Ann Arbor: University of Michigan Press.Google Scholar
Lijphart, Arend. 1984. Democracies. New Haven: Yale University Press.Google Scholar
Locke, Richard. 1995. Remaking the Italian Economy. Ithaca, NY: Cornell University Press.Google Scholar
Lohmann, Susanne. 1994. “Designing a Central Bank in a Federal System: The Deutsche Bundesbank, 1957–1992.” In Varieties of Monetary Reforms: Lessons and Experiences on the Road to Monetary Union, ed. Silos, Pierre. Boston: Kluwer Academic Publishers.Google Scholar
Lohmann, Susanne. 1995. “Federalism and Central Bank Autonomy: The Politics of German Monetary Policy, 1957–1992.” University of California at Los Angeles. Typescript.Google Scholar
Marsh, David. 1992. The Bundesbank: The Bank that Rules Europe. London: Heinemann.Google Scholar
Maxfield, Sylvia. 1994. “Financial Incentives and Central Bank Authority in Industrializing Nations.” World Politics 46(4):556–88.Google Scholar
Maxfield, Sylvia. 1997. Gatekeepers of Growth: The International Political Economy of Central Banking in Developing Countries. Princeton, NJ: Princeton University Press.Google Scholar
McCubbins, Mathew. 1985. “The Legislative Design of Regulatory Structure.” American Journal of Political Science 29(4):721–48.CrossRefGoogle Scholar
McCubbins, Matthew, Noll, Roger, and Weingast, Barry. 1989. “Structure and Process, Politics and Policy: Administrative Arrangements and the Political Control of Agencies.” Virginia Law Review 75(2):431–82.Google Scholar
McCubbins, Matthew, and Schwartz, Thomas. 1983. “Congressional Oversight Overlooked: Police Patrols versus Fire Alarms.” American Journal of Political Science 28(1):165–79.Google Scholar
Moe, Terry. 1989. “The Politics of Bureaucratic Structure.” In Can the Government Govern? ed. by Chubb, John E. and Peterson, Paul. Washington, DC: Brookings.Google Scholar
Moe, Terry. 1990. “The Politics of Structural Choice: Toward a Theory of Public Bureaucracy.” In Organization Theory: From Chester Barnard to the Present and Beyond, ed. Williamson, Oliver. New York: Oxford University Press.Google Scholar
Mooney, Christopher Z. 1996. “Bootstrap Statistical Inference: Examples and Evaluations for Political Science.” American Journal of Political Science 40(2):570–602.CrossRefGoogle Scholar
Mooney, Christopher Z., and Duval, Robert. 1993. Bootstrapping: A Nonparametric Approach to Statistical Inference. Sage University Paper Series on Quantitative Applications in the Social Sciences, 07-095. Newbury Park, CA: Sage.Google Scholar
Neumann, Manfred J. 1991. “Central Bank Independence as a Prerequisite for Price Stability.” In The Economics of EMU, European Economy Special Edition, No. 1. Brussels: European Commission.Google Scholar
New Zealand Parliamentary Debates. 1989. Auckland: Government of New Zealand.Google Scholar
Persson, Torsten, and Tabellini, Guido. 1990. Macroeconomic Policy, Credibility, and Politics. London: Harwood Academic Publishers.Google Scholar
Powell, G. Bingham. 1982. Contemporary Democracies: Participation, Stability, and Violence. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
Powell, G. Bingham, and Whitten, Guy. 1993. “A Cross-National Analysis of Economic Voting Taking Account of the Political Context.” American Journal of Political Science 37(2):391–414.Google Scholar
Posen, Adam. 1993. “Why Central Bank Independence Does Not Cause Low Inflation: The Politics Behind the Institutional Fix.” In Finance and the International Economy 7, ed. O'Brien, Richard. New York: Oxford University Press.Google Scholar
Posen, Adam. 1995. “Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence.” NBER Macroeconomics Annual. Cambridge, MA: M.I.T. Press.Google Scholar
Putnam, Robert. 1993. Making Democracy Work. Princeton: Princeton University Press.Google Scholar
Ramsey, J. B. 1969. “Tests for Specification Errors in Classical Linear Least Squares Regression Analysis.” Journal of the Royal Statistical Society, series B, 31(2):350–71.Google Scholar
Rogoff, Kenneth. 1985. “The Optimal Degree of Commitment to an Intermediate Monetary Target.” Quarterly Journal of Economics 100(4):1169–89.Google Scholar
Rogowski, Ronald. 1987. “Trade and the Variety of Democratic Institutions.” International Organization 41(2):203–33.Google Scholar
Sartori, Giovanni. 1976. Parties and Party Systems. New York: Cambridge University Press.Google Scholar
Scharpf, Fritz. 1987. Crisis and Choice in European Social Democracy. Ithaca, NY: Cornell University Press.Google Scholar
Strom, Kaare. 1990a. “A Behavioral Theory of Competitive Political Parties.” American Journal of Political Science 34(2):565–98.Google Scholar
Strom, Kaare. 1990b. Minority Government and Majority Rule. Cambridge: Cambridge University Press.Google Scholar
Sturm, Roland. 1989. “The Role of the Bundesbank in German Politics.” West European Politics 12(2):1–11.Google Scholar
Taagepera, Rein, and Hayes, James. 1977. “How Trade/GNP Ratio Decreases with Country Size.” Social Science Research 6(1):108–32.CrossRefGoogle Scholar
Tarrow, Sidney. 1990. “Maintaining Hegemony in Italy: ‘The softer they rise, the slower they fall!” “ In Uncommon Democracies: The One-Party Dominant Regimes, ed. Pempel, T. J.. Ithaca, NY:Cornell University Press.Google Scholar
Western, Bruce. 1995. “Concepts and Suggestions for Robust Regression Analysis.” American Journal of Political Science 39(3): 786–818.Google Scholar
Welsch, Roy. 1980. “Regression Sensitivity Analysis and Bounded-Influence Estimation.” In Evaluation of Econometric Models, ed. Kmenta, Jan and Ramsey, James. New York: Academic Press.Google Scholar
Wertmann, Douglas A. 1981. “The Christian Democrats: Masters of Survival.” In Italy at the Polls, 1979, ed. Penniman, Howard. Washington, DC: American Enterprise Institute.Google Scholar
Woldendrop, Jaap, Keman, Hans, and Budge, Ian, eds. 1993. “Political Data 1945–1990: Party Government in 20 Democracies.” European Journal of Political Research 24(1).Google Scholar
Woolley, John. 1984. Monetary Politics: The Federal Reserve and the Politics of Monetary Policy. New York: Cambridge University Press.Google Scholar
Submit a response

Comments

No Comments have been published for this article.