They Could Have Been Contenders: A Power-Sharing Explanation for Central Bank Independence in Transition Countries
(with Julia Gray and Jakob Willisch - last updated August 2017)
In new democracies, where political participation has long been suppressed and party identities are fluid, many potential candidates can emerge to challenge incumbents. How do political leaders deal with challengers in environments where their appeal and ambitions are unknown? We argue that incumbents can use greater policy discretion to tease out different types of actors, revealing their aspirations for holding political office. We show how our theory helps explain patterns of central bank independence after countries transitioned from communism. We test our argument using new biographical data of policymakers and an index of central bank independence on a sample of 29 post-communist transition countries between 1990 and 2012. We find evidence that higher levels of CBI co-occur with the appointment of politically experienced central bank governors as electoral competition increased.