Why Do Politicians Implement Central Bank Independence Reforms?

The purpose of this paper is 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 86 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. Copyright International Atlantic Economic Society 2013