Working Paper No. 143. Sven-Olov Daunfeldt, Jörgen Hellström and Mats Landström (2009). Why Do Politicians Implement Central Bank Independence Reforms?

Abstract: This paper is a first empirical attempt to investigate why politicians around the world have chosen to give up power to independent central banks, thereby reducing their ability to fine-tune the economy. A new data-set covering 132 countries, of which 89 countries had implemented such reforms, was collected. Politicians in non-OECD countries were more likely to delegate power to independent central banks if their country has been characterized by a high variability in historical inflation and if they faced a high probability of being replaced. No such effects were found for OECD-countries.