A bargaining model of partisan appointments to the central bank

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Abstract

In this paper, a bargaining model is developed to analyze the appointment of central bankers in a two-party political system. The major results of the paper are: 1) The party in power will appoint partisans early on but later appointments will be increasingly moderate in their views concerning monetary policy. 2) Changing the timing of the appointment of the board chairman from the end of a president's term in office to the first period of the president's term will lead to more partisan monetary policy. 3) In equilibrium, nominations to the board are not rejected, thus confirmation hearings appear to be nothing more than a ‘rubber stamp’ process. 4) Lengthening the terms on the board relative to the electoral cycle will lead to more moderate appointments to the central bank and a reduction in partisan policymaking.

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I would like to thank Roy Gardner, Tom Havrilesky, and an anonymous referee for their comments on earlier drafts of this paper. All errors are mine

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