Distributional politics and central bank independence : monetary reform in the United Kingdom, Canada, Australia and New Zealand
Why do politicians change the legislation governing the central bank to give this institution operational independence in the setting of monetary policy. This thesis examines the political debates over central bank independence in New Zealand, Canada, Australia and New Zealand during the 1980s and 1990s. These cases were selected due to the variation in their levels of central bank independence, while holding key institutional variables constant. Four hypotheses are suggested by the political economy literature to explain the timing of this legislative change: the need to signal creditworthiness to international financial markets, in response to lobbying by domestic interest groups opposed to inflation, in response to proposals from an epistemic community of monetary experts or based on the self-interest of politicians concerned with re-election. The case studies find that politicians delegate to the central bank when this reform has the consensus support of an epistemic community of monetary experts, and a key politician is willing to champion the legislation through parliament. This epistemic community has increased influence during periods of economic uncertainty, such as following a financial crisis. A key politician is motivated to support this reform due to ideological or electoral reasons. This reform was facilitated by political institutions characterised by few checks and balances that concentrated power in the hands of the executive and offered few obstacles to changing the central bank's statute. Central bank independence was rejected in the cases where the epistemic community did not hold a consensus on the need for reform, and politicians saw only electoral risks from changing the central bank's statute. This study finds that politicians retain room to manoeuvre despite the rise of financial globalisation.