We gratefully acknowledge the helpful comments from several colleagues and seminar participants. We wish to thank David Findlay, Lyoe Lee, Amy Slipowitz, Bradley Turner, and two anonymous referees for useful comments that have substantially helped us to improve the paper. All errors are our own.
Replacing a “Disobedient” Central Bank Governor with a “Docile” One: A Novel Measure of Central Bank Independence and Its Effect on Inflation
Article first published online: 16 AUG 2011
© 2011 The Ohio State University
Journal of Money, Credit and Banking
Volume 43, Issue 6, pages 1185–1215, September 2011
How to Cite
VULETIN, G. and ZHU, L. (2011), Replacing a “Disobedient” Central Bank Governor with a “Docile” One: A Novel Measure of Central Bank Independence and Its Effect on Inflation. Journal of Money, Credit and Banking, 43: 1185–1215. doi: 10.1111/j.1538-4616.2011.00422.x
- Issue published online: 16 AUG 2011
- Article first published online: 16 AUG 2011
- Received August 3, 2010; and accepted in revised form Accepted February 9, 2011.
- central bank independence;
- turnover rate of central bank governor;
- monetary policy
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.