Checks and Balances, Private Information, and the Credibility of Monetary Commitments
Philip Keefer,David Stasavage +1 more
TLDR
This article developed and tested several new hypotheses about the anti-inflationary effect of central bank independence and exchange rate pegs in the context of different institutions and different degrees of citizen information about government policies.Abstract:
The authors develop and test several new hypotheses about the anti-inflationary effect of central bank independence and exchange rate pegs in the context of different institutions and different degrees of citizen information about government policies. Theory provides strong reason to believe that while central bank independence will prove more effective as a commitment mechanism in countries where multiple players in government have veto power (checks and balances), the number of veto players will have no effect on the credibility of exchange rate pegs. Conversely, the authors argue that central bank independence does not solve the problems of commitment that arise when citizens are imperfectly informed about the contribution of government policy to inflation. Exchange rate pegs, however, mitigate these problems. The authors present extensive evidence from cross-country tests using newly developed data that provide strong support for their propositions.read more
Figures
Fig II: estimated effect of an exchange rate peg (at different levels of volatility) 
Table I: Summary statistics 
Table III: CBI, exchange rate pegs, and information 
Table II: CBI, exchange rate pegs, and political institutions 
Table IV: J-tests against alternative specifications 
Figure I: estimated effect of 0.2 increase in CBI (at different levels of log check)
Citations
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Introduction: The International Diffusion of Liberalism
TL;DR: In a recent symposium on the diffusion of liberal policies and politics as mentioned in this paper, four distinct theories to explain how the prior choices of some countries and inter-national actors affect the subsequent behavior of others: coercion, competition, learn ing, and emulation.
Journal ArticleDOI
The Limits of Delegation: Veto Players, Central Bank Independence, and the Credibility of Monetary Policy
Philip Keefer,David Stasavage +1 more
TL;DR: In the context of monetary policy and independent central banks, the authors find evidence supporting the following predictions: delegation is more likely to enhance credibility and political replacements of central bank governors are less likely in the presence of multiple political veto players; this effect increases with the polarization of veto players.
Journal ArticleDOI
Globalization pressures and the state: the worldwide spread of central bank independence
Simone Polillo,Mauro F. Guillén +1 more
TL;DR: In this article, the authors examine the impact of globalization on state structures in the specific instance of the central bank and predict that countries boost the independence of their central bank from the political power as their exposure to foreign trade, investment, and multilateral lending increases.
Journal ArticleDOI
Political System Transparency and Monetary Commitment Regimes
TL;DR: In this paper, the authors argue that the transparency of monetary commitments and political systems are substitutes for low inflation, and that autocratic regimes are more likely to adopt exchange-rate pegs than democracies and that CBI is effective in limiting inflation in nations with high levels of political transparency.
ReportDOI
When Does Policy Reform Work?: The Case of Central Bank Independence
TL;DR: In this paper, the authors report evidence that central bank reforms reduced inflation in countries with intermediate constraints but had no or little effect where constraints were strong or weak, and also present evidence consistent with the seesaw effect: in countries where central bank reform reduces inflation, government expenditure tends to increase.
References
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TL;DR: In this paper, it was shown that discretionary policy does not result in the social objective function being maximized, and that there is no way control theory can be made applicable to economic planning when expectations are rational.
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