Replacing a “Disobedient” Central Bank Governor with a “Docile” One: A Novel Measure of Central Bank Independence and Its Effect on Inflation


  • 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.


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.