Executive Interference and the Case for Central Bank Autonomy

Author:: Wertz, Sophia
Published:: [University Park, Pennsylvania] : Pennsylvania State University, 2020.
Physical Description:: 1 electronic document
Additional Creators:: Wooten, Jadrian and Schreyer Honors College

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Central bank autonomy, referring to an absence of government influence or control over a nations central bank, has long been associated with controlled inflation rates and macroeconomic success. However, the mere existence of an independent central bank is no guarantee of its actual freedom. As evidenced in many countries, political incentives to interfere in central banking systems lead politicians to comment on central bank policy, attempt to sway policy or elect government officials to the central bank staff.Pooled time-series data from the United Kingdom, Venezuela, and the United States demonstrate the effects of threats to central bank autonomy on inflation rates, unemployment rates, political freedom scores (measured by Freedom House scores), and the actual existence of independence. The data were regressed using a logistic regression method. United Kingdom data shows a strong negative correlation between autonomy and inflation rates, a significant negative correlation between autonomy and unemployment rates, and a significant negative correlation between autonomy and threats to autonomy. Venezuelan data shows a significant positive correlation between autocracy (measured by an increasing Freedom House score) and threats to autonomy and a significant, negative correlation between autonomy and threats. Data obtained for the United States was not significant due to multicollinearity on the variable for the existence of central bank autonomy.Data results indicate that inflation and unemployment are both correlated with central bank autonomy, and threats to central bank autonomy do have an impact on the actual existence of autonomy. This could promote less executive interference, be it commentary, criticism, or direct control of, central banks and their policies.

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B.S. Pennsylvania State University 2020.

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