Paper Autonomy, Private Ambition: Theory and Evidence Linking Central Bankers’ Careers and Economic Performance

Central bankers’ careers are shown to influence inflation outcomes. I present two theories in which careers explain central bank behavior, develop them in a game theoretic model, and test them using a comprehensive new data set of central bankers’ career backgrounds which spans twenty rich democracies and half a century. Career experiences vary considerably over this sample, and not only mould beliefs about appropriate policy (the socialization hypothesis), but also shape career concerns for central bankers who seek career advancement in either the financial sector or government (the career incentives hypothesis). Accordingly, time series cross-section analysis of inflation shows central bankers with financial sector backgrounds preside over lower inflation, while central bankers with bureaucratic experience produce higher inflation. The magnitude of career effects on inflation is on par with standard measures of central bank independence, and interactive models suggest both socialization and incentives contribute to these career effects. The study of central banks in particular and bureaucracy in general should pay greater attention to individual preferences and their interaction with organizations; institutions alone are not enough. Prepared for the Annual Meeting of the American Political Science Association, August 28–31, 2003, held in Philadelphia. An earlier version of this paper was presented at the Comparative Political Economy Workshop, Cornell University, October 25-26, 2002. I thank Torben Iversen, Peter Hall, Jim Alt, Michael Hiscox, Rob Fannion, Gary King, Amanda Friedenberg, Katerina Linos, Joe Foudy, Dan Gingerich, and Victor Shih for helpful suggestions and conversations over the long gestation of this project. I am grateful for the translation assistance of Christian Brunelli (Japanese) and Dean Hunt (Swedish). I am especially endebted to the Center for Basic Research in the Social Sciences and the Multidisciplinary Program in Inequality and Social Policy, both of Harvard University, and the National Science Foundation for supporting this research. Ph.D. Candidate, Department of Goverment. (Littauer Center, North Yard, Harvard University, Cambridge MA 02138; http://chris.adolph.name, [email protected]). Will it be sufficient to mark, with precision, the boundaries of these departments in the constitution of the government, and trust to these parchment barriers against the encroaching spirit of power? James Madison, Federalist 48