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Paper Autonomy, Private Ambition:

Theory and Evidence Linking Central Bankers

Careers and Economic Performance
Christopher Adolph
Harvard University
September 13, 2003

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 2831, 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, cadolph@fas.harvard.edu).

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

1 Introduction
In difficult economic times, observers wonder whether central banks will stimulate a slowing
economy or maintain a policy to keep inflation in check. In todays gloomy environment, many
worry that central banks will be too conservative, paying too much heed to inflation while
global recession and perhaps even deflation loom. This dilemma raises questions not only about
institutions that try to balance independence and accountability, but also about the people
working within central banks themselves. Unfortunately, the political economy literature remains
ill-positioned to address both questions because it usually conflates central bank conservatism
with central bank independence. This confusion of preferences with institutions arises from the
unsupported assumption that independent central bankers are naturally conservative; in other
words, that heavy-handed government meddling is the only source of loose monetary policy.
Rather than ground a large and influential literature in an untested assumption, we should
disentangle our understanding of monetary preferences and institutions. We need a theory and
measure of central bank conservatism to complement existing work on central bank independence.
To understand central bankers monetary policy preferences, we should begin with central
bankers career paths and career concerns. A central bankers career background may influence
his personal beliefs about the ideal trade-off between inflation and output stability, while at the
same time providing the basis for exchanges of future career favors for policy influence. Hence a
financial sector veteran may make a more conservative monetary agent than a former bureaucrat
for two reasons: first, because ex-bankers are conditioned to care more about inflation vis-`avis output; and second, because ex-bankers are more amenable to and suitable for high-level
financial jobs offered by financial sector firms pleased with conservative monetary policy. In
turn, bureacrats may be less enamored with inflation-fighting for its own sake, and more enticed
by tacit promises of high political office to provide the government accommodating monetary
policy. In sum, the career trajectories of central bankers before and after the central bank may
hold clues to their monetary policy conservatism while still in it.
The argument unfolds in two halves. I first place the career argument in the context of recent
research on central banks, developing both the socialization and career incentives mechanisms. I
also illustrate that career concerns can be embedded in the standard game threoretic model of
monetary policy (Rogoff 1986), thereby allowing outside principals leverage over monetary policy
even when the central bank is legally independent. In the second half of the paper, I test the
career background hypothesis using a comprehensive new dataset of central bankers career paths
from twenty countries over fifty years, showing that central bankers career experience explains
significant differences in inflation performance across countries and time.

2 Career paths and conservatism in the central bank

It is intuitive to most political scientists that we should examine policymakers preferences in order
to understand policy outcomes. Yet precisely this question has been overlooked in the study of
central banking. After reviewing the context and consequences of this oversight, I present an
argument for understanding the preferences of officials through their career backgrounds, which
may affect both the pre-existing preferences of central bankers and the incentives which face

2.1 Do we really need to study central bank conservatism?

For twenty years, the problem of time inconsistency has dominated the study of monetary policy, suggesting that elected governments will always be vulnerable to the (arguably ultimately
futile) temptations of expansionary monetary policy, leading to permanently excessive inflation
(Kydland and Prescott 1977, Barro and Gordon 1983). An influential series of models suggests a
credibly conservative and independent monetary agent can ameliorate this inflationary bias (Rogoff 1986, Lohmann 1992). Scholars have measured and policymakers have implemenented central
bank independence, but the other half of the formulationcentral bank conservatismhas been
ignored in comparative research.
Autonomy is the ability to act on ones preferences. It tells us nothing about the content of
those preferences. Yet early studies set the precedent of treating CBI as a sufficient measure of
both autonomy and conservatism (Grilli, Masciandaro and Tabellini 1991; Alesina and Summers
1993; and Cukierman, Webb, and Neyapti 1992), and dozens of published works that rely in some
way on CBI have followed this example. This modeling choice is an oversimplification. It cannot
be justified by the explanatory power of CBI taken alone, since even the best CBI measures fail
to explain inflation performance in models with plausible controls (Campillo and Miron 1997)
or in developing countries generally (Cukierman, Webb, and Neyapti 1992). Moreover, no study
finds the expected positive relation between CBI and the variance of unemployment, suggesting
that CBI is an incomplete measure of nonaccommodation. Finally, and unsurprisingly, efforts
to disaggregate CBI into separate measures of independence and conservatism fail to find any
added effect of statutory injuctions to pursue price stability (Berger, de Haan, and Eijffinger 2001
review the evidence). Policy preferences run deeper than unenforceable commands, and only an
approach focused on the agents themselves will uncover the roots of central bankers behavior.
Excepting studies of partisan appointment, however, the central bankers themselves have
been ignored.1 Perhaps stereotypes of conservative, financial-sector-trained central bankers lead
many to assume that these agents, and hence central bank conservatism itself, are invariant across
time and space. But the stereotype is misleading: central bankers hail from a variety of careers,
of which private finance is not even the most common (see Section 3.2). As I will argue, differing
backgrounds may even form the basis for a measure of central bank conservatism.
A tendency to accord central bankers with remarkable self-restraint may also contribute to
Several authors have examined the effect of partisanship in the appointment of central bankers, particularly
in the US (Chappell, Havrilesky, and MacGregor 1993), but also in Germany (Berger and Woitek 1999). These
studies generally find that more conservative parties appoint central bankers who pursue more hawkish monetary

the neglect of their preferences. This faithimplicit in studies of central bank independence
that presume legal declarations of policy objectives will be followed as a matter of courseis
paradoxical for a literature centered on the inability of the government to faithfully execute the
long-term interests of its own principals. As McCallum (1995) notes, constitutional directives to
the central bank to pursue low inflation may only relocate the time inconsistency problem, since
the government has no more incentive to enforce such commands than it has to resist inflationary
policies in the first place. Moreover, given an independent central bank with an official policy
goal, it is unclear what the government could do to police or clarify the mission of a wayward
central bank, short of the costly step of changing the law itself. 2 It is the very nature of agent
independence to give the principal as little power to enforce as to override.
Contrast this murky delegation problem with the hopeful view of Alan Blinder, an economist
and former Vice Chairman of the Fed, that central bankers (and political agents generally) check
their preferences at the door:
It is not necessary to find a truly conservative central banker whose personal value of the
parameter [the amount of output the central banker is willing to sacrifice to lower inflation]
is excessive; you can simply direct the central bank to behave as if were higher. In either
case, central bankers set aside their own personal beliefs about what is best for society ( or
k [the ideal inflation rate]) and adopt instead parameter values that lead them to do their

Blinder concedes that Homo economicus may not behave this way. But responsible people, put
in positions of authority, do. (Blinder, 1997, p. 14)
Blinder served on the FOMC, so his views cannot be dismissed out of hand. But from a
principal-agent perspective, Blinders claims ring hollow. First, compared with their political
principals, central bankers enjoy faster access to economic data and specialized staff studying
monetary policy questions. Information asymmetry is central to arguments for bureaucratic
dominance of policy, and it is easy to imagine that political principals tasked with dozens of
policy problems may not even be aware that agents are implementing policies the principal would
oppose if he knew more (Peters 1981, Weir and Beetham 1999). Second, Blinders responsible
central banker must not be subject to the unconscious biases that may follow each agents
unique experience, knowledge, and interests. Instead, he can tweak the preference function in
his head at the drop of a hat. Finally, the legal strictures on central bankers tend to leave
substantial wiggle-room; Blinder himself laments the lack of discussion and consensus on targets
and weights by the FOMC (Blinder 1997, 5). When the law does not say precisely what and
k should be, there is no reason to expect all will interpretor want to interpretthe law in the
same way. If agents can use the law to rationalize their pre-existing policy preferences, they are

The European Parliament has learned how hard it is to hold an independent central bank accountable.
Unfortunately, despite the spate of articles on central bank accountability, basic questionswhat does it mean to
be accountable, who shall enforce accountability, and howremain foggy (ironically, the meaning of the subsidiary
concept of transparency is particularly contentious; see, e.g., the debate between central bankers Buiter [1999]
and Issing [1999]). Moreover, central bank accountability, proposed in an era of low inflation and prosperity,
remains wholly untestedthere is not yet even an anecdote regarding a central bank which was held to account,
or changed its monetary policy because of accountability institutions (like legally defined targets).

not constrained, but shielded from accountability. 3

Because central bankers are neither homogenous nor straightjacketed, their own preferences
are likely to show up in policy. And monetary policy matters: most economists agree it has
real effects in the short run, so central bankers will always have to consider the trade-off between
inflation control and maintaining stable economic output. 4 In this context, any presumption that
there is a single right level of inflation-aversion begs the political question, Right for whose
interests? Because the trade-off between inflation and economic stability has distributional
consequences, governments, political parties, and private actors differ in their preferred inflation
hawkishness. To this list of political actors, we must add the central bankers themselves. For
all the attention paid to grants of discretion to central bankers, what central bankers do with
discretionary power is woefully under-theorized. It is time to ask how central bankers preferences
vary, whether their preferences are influenced by other actors, and what effect those preferences
have on economic outcomes.

2.2 The career and policy choices of bureaucrats

This paper approaches the preferences of monetary policymakers by way of their career paths.
The effects of career incentives on public officials are often cited in the mass media, but have
received only sporadic attention in political science. It is worth reviewing several examples from
the literature to gain a sense of how career paths influence policy, what options exist for civil
servants to advance their private or political careers, and how opportunity structures vary across
Political actors career ambitions vary; some simply want to stay in place, others to rise to
higher office within a given sector or organization, and still others to rotate between two sectors,
ratcheting higher with each revolution. American politics is replete with examples of all three
career trajectories. Since Mayhew (1974), political scientists understanding of Congressional
behavior has centered on legislators overriding need to preserve their careers through re-election,
and since Schlesinger (1966), scholars have recognized that many legislators seek to rise above

This critique of purely legal arrangements that purport to solve the monetary delegation problem also
applies to the concept of inflation targeting (Svensson 1997), adopted by several countriesthe UK, Canada,
Spain, Australia, Finland, New Zealand, and the ECBthroughout the 1990s. Many economists and central
bankers consider legally enshrining an inflation goal a crucial step towards central bank accountability. Essentially
all inflation targeting countries follow a flexible inflation target in which the central bank accepts deviations
from the target to some degree (or for some period) to minimize output variability (Siklos 2002, Cukierman 2002).
However, this degree of flexibility (i.e., the weight of the tradeoff between inflation and output stabilization) is never
dictated, policed, or even publicized, nor is the output target ever explicitly set (Cukierman 2002). Finally, the
mechanism by which a government would enforce the inflation goal is usually either unclear, untested, or difficult
to impose. Indeed, per McCallums critique of CBI, governments may not even wish to punish central banks who
fail to quickly return to the target inflation level. In this context, a central banker who officially enjoys only
instrument independence (in the Debelle and Fischer [1994] sense) could exploit weak oversight and information
advantages to establish de facto goal independence, at least in the short run. Even central bankers with (partially)
assigned goals retain substantial monetary policy flexibility, and the preferences of individual central bankers still
matter under inflation targeting regimes.
Walsh (1998, Ch. 1) is a good place to start on the short run trade-off between output volatility and price
stability. The popular Taylor Rule approximation of monetary policy decisions is one embodiment of this dilemma,
and empirical work accepting this framework suggests that central bankers preference differ and matter. For
example, Judd and Rudebusch (1998) argue that estimating separate Taylor-rule-like reaction functions for the
Fed under Chairmen Greenspan, Volcker, and Burns reveals systemically different behavior.

their office; from the state house to the US House, from the US House to the Senate, and
so on. In both cases, legislators policy preferences result from the career incentives created
by the electorateand sometimes even the prospective electorate of a new office (Carey 1994,
1996; Rothenberg and Sanders 2000). In contrast, the executive branch is often described as
a revolving door for in-and-outers, officials who are first employees of regulated sectors, then
regulators themselves, and finally lobbyists or leaders for the regulated once more (see, e.g., Heclo,
1988). In recent years prominent US officials, including Vice President Dick Cheney, Securities
and Exchange Commission chair Harvey Pitt, and Treasury Secretary Robert E. Rubin, have
circulated through the private and public sectors, and in each case appeared to some observers to
make policy choices based on their career experiences. 5 Of course, government officials generally
deny that career-incentives shape their policy choices, which suggests that we will have to look
for indirect evidence of career effects on policy.
Career paths matter in other countries besides the US. Reviewing the comparative evidence,
Schneider (1993) argues that where a bureaucrat stands depends not only on where he sits, but
on where he has sat and will sit. In many countries, senior bureaucrats often rise to the top of the
civil service only to jump to a lucrative private sector job. Known as pantouflage in France, this
pattern is also found in Denmark, Japan, the Netherlands, and Spain (Rouban 1999, Schneider
1993, Jensen and Knudson 1999, van der Meer and Raadschelders 1999, Alvarez de Cienfuegos
1999). On the other hand, pantouflage is limited or forbidden in Belgium, Britain (except the
Treasury), and Swedenintensifying comptetition for the next rung on the civil service ladder
(Brans and Hondeghen 1999, Dargie and Locke 1999, Pierre and Ehn 1999).
This competition provides partisan governments leverage over agencies. Hence promotion
to the top of the civil service has grown more politicized in Britain and Germany, and has long
been a feature of bureaucratic appointments in most other European democracies (Peters 1997,
Mayntz and Derlien 1989, Dowding 1995, Page and Wright 1999). And though many consider
it the paradigmatic case of bureaucratic dominance, Japan may provide the best example of
political principals manipulating bureaucrats careers to ensure policy meets the governments
needs. Loyal Japanese bureaucrats are often rewarded with private or political posts: thanks
to the support of the ruling party, from 19491980 the lower house of the Diet contained, on
average, 51 former bureaucrats, including 10 from the Ministry of Finance; bureaucrats rarely
ran for the opposition (Naka 1980, reproduced in Ramseyer and Rosenbluth 1993; Kim, 1988).

Critics link Halliburtons no-bid contract to rebuild Iraqi oil fields to Cheneys years at Halliburton and
large retirement bonus (e.g., David Lazarus, Conflict of interest for vice president? San Fransisco Chronicle, Nov. 3, 2002, G1). To others, the whole of Cheneys careerthrough two presidential administrations and his interregnum as CEOrevolves around defense department favors to Halliburton; in Cheneys five
years there, the company received $2.3 billion in federal contracts, up from $1.2 billion in the previous five
(Robert Bryce, Cheneys Multi-Million Dollar Revolving Door, Mother Jones News Wire, August 2, 2000,
http://www.motherjones.com/news wire/cheney.html; Knut Royce and Nathaniel Heller, Cheney Led Halliburton To Feast at Federal Trough, Center for Public Integrity, http://www.public-i.org/story 01 080200.htm,
accessed July 24, 2003). Daniel Gross argues Harvey Pitts tepid response to the corporate accounting scandals of
20012 reflects his need to remain viable in the system after leaving office, on the presumption the lawyer wants
to grow more wealthy representing accounting firms (The Pitt: Why Chairman Harvey Pitt has failed, Slate,
Nov. 1, 2002, http://slate.msn.com/?id=2073450). And Joseph Stigliz (2002) claims Robert Rubins approach
to international economic policy can be explained by his career path, which led from Goldman Sachs to Citibank
by way of the Treasury.

Disloyal bureaucrats face the blacklist. 6

The use of career rewards and punishments to affect policy implementation has implications
for the study of delegation that are not fully appreciated. Most of the vast delegation literature
focuses on formal, legal means of monitoring and control (see Bendor, Glazer, and Hammond
[2001] for a review). Initial pessimism that political agents cannot be controlledsince formal
avenues are often cumbersome and seldom usedhas given way to tentative optimism that some
principals manage agents effectively without frequent recourse to formal sanctions (Huber and
Shipan 2002). It is often argued that an effective principal need not be an active overseer, but
instead can rely on a combination of credible sanctions and sporadic, perhaps even third-party,
monitoring (Weingast and Moran 1983; McCubbins and Schwartz 1984). But principals may
also control agents through extra-legal mechanisms: rewards and punishments that require no
hearings or legislation. Where available and effective, informal methods may even be preferred,
since they allow bureaucrats to maintain an aura of independence. In particular, contingent
career rewards as a subtle means of mastering agents bears investigation, and in this paper, I
demonstrate the utility of career incentives to uncover new insights in the well-plowed field of
monetary delegation.
Career mechanisms for bureaucratic control also open the playing field to groups outside
the government. Studying career incentives thus gives us theoretical and empirical leverage over
the case of an agent serving several masters. Recent work on delegation by multiple principals
tackles situations where the roles and powers of the principals are clearly defined (Epstein and
OHalloran 1996, 1999; Morris 2000). But many political principalssuch as interest groups
and firmslack a formal role in policymaking and implementation, yet still exert influence by
informal means. Career rewards may be among the most potent tools these shadow principals
possess for manipulating bureaucrats.

2.3 Career incentives for monetary policy making

The application of career incentives to monetary policy delegation is not entirely new. The same
paper which popularized the independence plus conservatism solution alludes to a career-based
central bank conservatism (Rogoff, 1985), a notion seconded by Lohmann (1992) and Stigliz (2002,
p. 19). Central bankers are often veterans of the financial sector, the argument goes, and the
promise of future career rewards renders the financial sector a shadow principal of the central
bank, encouraging conservative monetary policy. 7 The idea that financial sector experience makes
Ramseyer and Rosenbluth (1993) document many career mechanisms by which the governing Liberal Democratic Party manipulates Japanese bureaucrats, including threats of dismissal and control over promotion within
the bureaucracy. Most important, elite bureaucrats wages are kept below market to ensure obedience to the
government, which has the legal right to grant or deny lucrative private and public jobs. Top civil servants retire early to avail themselves of these career rewards, a process known as amakudari, or descent from heaven
(Koh, 1989). By showing that political principals can control seemingly independent expert agents using career
incentives, Ramseyer and Rosenbluth turned the notion of Japanese bureaucratic dominance on its head.
Posen (1995) takes the argument further, claiming CBI is irrelevantonly financial sector influence matters.
However, his proxies of financial sector strength (a lack of universal banking, banking regulation by the central bank,
and the presence of federalism and party fractionalization) are somewhat distant from the concept of financial sector
influence and may pick up spurious correlation from alternative sources of central bank independence (federalism,
for instance). The argument itself remains provocative, but without stronger evidence, we should not dismiss
central bank institutions and officials as epiphenominal.

central bankers more inflation-averse also appears in the literature on the Federal Reserve. For
example, Havrilesky and Gildea (1991) find that years spent in the financial sector predicts
Federal Open Market Committee (FOMC) members dissents in favor of tightness, while Wooley
(1984) and Belden (1989) link regional bank presidents greater conservatism to their their careers
in private banking. In the US, several former FOMC members attributed quitting the Fed to
the gap between public and private sector salaries. 8 The evidence for career-concerned central
bankers grows when one notes from 1950 to 2000, the median Fed Governor chose to serve only
5.2 years of a guaranteed fourteen year term; many Governors re-enter the private sector on
leaving the Fed. To date, however, the career incentives argument has not been extended across
countries or career types.
Recognizing that central bankers are as likely to be career bureaucrats as financial sector
types opens a new front for the career-incentives approach. Just as a former private banker,
hoping to secure a better private banking job later, may bear private banks preferences in
mind when setting monetary policy, so may a bureaucrat or politician with ministerial ambitions
accommodate the governments election-driven desire for economic stability. Career concerns
may loom large for a bureaucrat serving a stint at the central bank since governing parties in
industrialized democracies exercise significant control over the appointment of senior civil servants
and subcabinet ministers, even where the civil service is nominally neutral.
For both bankers and bureaucrats, the human capital, social networks, and preferences acquired over a career point to the likely shadow principals at work behind the scenes. To the extent
that monetary policy makers are either government or financial types who feel pressured by
these sectors to be doves or hawks, the careers of central bankers constitute an observable measure of conservatism in central banks. Since governments have an electoral incentive to keep
the economy stable, while banks tend to be particularly concerned with inflation, my basic prediction is simple: central bankers with career backgrounds in the financial sector should be more
anti-inflation than central bankers who are career bureaucrats.
Former finance ministry officials and former central bank staff (i.e., below the monetary
policy making level) comprise a possible exception to this hypothesis. Given their expertise and
opportunities to make connections with banking sector officials, these bureaucrats are more likely
to have developed their own views on monetary policy and are arguably better equipped to plunge
into the financial sector than other bureaucrats. As we shall see in Section 3.3, these officials
also have distinct career patterns from other bureaucrats who find themselves on central bank
boards. Therefore, I distinguish finance ministry and central bank experience from other types
of government experience, holding out the possibility that their career incentives may be quite

2.4 Career socialization and monetary policy

There is an another interpretation of correlation between financial sector experience and central bank conservatism: rather than career incentives, perhaps long sojourns in private banking
This view has been made explicit by former Governors Robert C. Holland, who protested he could not pay his
childrens tuition bills on a Fed Governors salary, and Jeffrey M. Bucher, who lamented the financial penalty
he paid to leave the private sector for the Fed. Both men served only three years before returning to private
employment (Katz 1992).

engender conservative ideas about inflation and monetary policy. At least three different mechanisms could produce pre-existing preferences for hawkish monetary policy: 1.) bankers may be
socialized to believe that inflation-fighting is the primary purpose of monetary policy, 2.) wealthy
private bankers material interests may induce anti-inflation feeling, 9 and 3.) conservatives with
anti-inflation views may self-select into financial careers.
Of the three possibilities, socialization seems most promising. It is reasonable to suspect central bankers approaches to policy problems are influenced by prior work experience, and that the
monetary policy convictions of career-based peer groups influence central bankers. 10 The premise
that work experience influences attitudes is widely held by organization theorists (Hambrick and
Mason 1984, Gunz and Jalland 1996, van Maanen and Schein 1979). Experiments show that
industry-background and past functional roles within organizations influence executive decisionmaking (Dearborn and Simon 1958, Beyer et al 1997, Melone 1994, and Hitt and Tyler 1991)
and in particular what information decisionmakers perceive as relevant (Rosman, Lubatkin, and
ONeill 1994). Though there is scant recent work, students of political elites noticed in the 1970s
that career socialization had pervasive, lingering effects on the behavior of policymakers (Putnam
1976). One scholar of comparative elites went to far as to assert that [v]alue-socialization is not
parental, or even based on early political experience, but apparently takes place from working in
a given field or institutional setting (Barton 1973, p. 242; quoted in Putnam 1976).
For a political example of career socialization, consider American Supreme Court justices.
Long viewed as wise arbiters of legal precedent, justices have turned out to be political beings
whose policy preferences systematically influence their decisions (Segal and Spaeth [1993] built
the coffin for the legal theory, and Bush v. Gore hammered the nails). In part, justices owe
their policy preferences to their career tracks; for example, justices with prosecutorial experience
are more conservative on civil liberties decisions, controlling for the judges partisanship and
appointing presidents ideology (Tate and Handberg 1991). Since Supreme court justices generally
lack career concerns, this seems to follow socialization (and perhaps some self-selection), with
the experience, training, and environment of prosecutors imparting conservative policy beliefs.
For financial-sector-trained central bankers, the socialization argument is similar: work
within a sector that fears inflation and considers the struggle against it the only acceptable
monetary stance should shape the central bankers own attitudes on monetary policy. 11 Hence,

See Scheve (2002a,b) for cross-national evidence that asset wealth leads to anti-inflation attitudes, and Burden
(2000) for evidence that policymakers consider their material interests in passing laws
Some speculate that central bankers might someday form (Kapstein 1992) or perhaps already constitute a
cohesive community collectively puzzling through policy choices; this perspective would relocate the socialization
process within the central banking community itself. This paper does not suppose the existence of a policy
community of central bankers, though the argument made here would jibe with the notion of several distinct
communities (financiers, bureaucrats, and economists) intersecting the world of central banking. In particular,
the growing cooperation among central bankers and academic economists on monetary policy research has struck
several observers (e.g., McCallum 1999), but as the data collected here show, economists remain a minority of
central bank leaders, and comprehensive explanations of central banker behavior will thus need to reach beyond
the economic community.
Private bankers have a long-standing reputation for conservatism on inflation, though I am unaware of any
systematic surveys of their attitudes. In the US, members of Congress and the Federal Reserve believe that [i]f
ones goal is to minimize inflation ... a sure way to achieve that goal is to have private bankerswho are among the
worlds fiercest inflation hawksappoint the regional bank presidents (S. Greenhouse, Showdown: The populist
versus the Fed. New York Times October 12, 1993, D1). And in many cases, banks fear of inflation surely has
a rational basis. For example, Santoni (1986) provides evidence that the stock prices of banks react negatively to

according to the socialization hypothesis, central bankers with career backgrounds in the financial
sector should be more anti-inflation than other central bankers.
The socialization hypothesis holds that past career experience determines preferences over
policy itself, while the career-incentives hypothesis sees in policy choices a means to a private end.
Both perspectives are theories about the effects of career paths, and to the extent that either
or both mechanisms act on central bankers, career variables are an important antecedant of
monetary policy. In the Model Appendix, I show how either career-incentive-induced preferences
or socialized policy preferences could affect the policy choices made by Rogoff (1986) central
bankers; readers interested in a formalization of the argument should turn there now. In the next
section, I test the career effects approach by looking at inflation performance across time and
countries, then present three tests to distinguish career incentives from pre-existing preferences.

3 Testing the career effects approach to monetary policy:

Evidence from advanced industrialized democracies
The theory elaborated thus far suggests a number of testable hypothesis regarding monetary
policy making. For now, I focus on the simplest empirical implication: monetary policy should
be more anti-inflationary in the hands of financial sector types than government bureaucrats.
This argument contains several stepsbetween careers and preferences, between preferences and
policy choices (votes), and between policy and outcomes (inflation and variation in real variables).
Here I attend only to the overall linkage between central bankers careers and inflation because
these are the two concepts most easily measured and compared over a broad array of countries
and periods. I then attempt to distinguish the role of career incentives and socialized preferences
by considered the context in which career effects on inflation operate.

3.1 Measurement
In developing measures of central bankers careers, the first choice is whether to focus on what
they did before joining the central banks board, or what they did after. There are theoretical,
empirical, and practical reasons to concentrate on measures based on past career experience. It is
obvious that prior experience provides the context in which career socialization takes place, and
should therefore be a good measure to test the socialization hypothesis. But prior careers are
important for the incentives argument as well, since experience provides the specialized knowledge
and social networks on which (necessarily subtle and informal) job-for-policy exchanges may be
based. Choosing to work in a sector also reveals preferred career rewards, and I show in Section
3.3 that earlier work in a sector also strongly predicts post-central bank career patterns. Future
careers are central to the career incentives story, but from the perspective of central bankers
they are uncertain. A central banker may aim towards a future career that fails to materialize
for any number of reasons (e.g., poor health, poor performance, or the arrival of an unexpected
alternative). To the extent the central bankers past reveals their expectations and preferences
at the time they served on the monetary policy authority, prior career measures should not be
unanticipated inflation, as might be expected of net holders of nominal assets.


Given that past careers arguably proxy both types of career effects, there are three practical
reasons to develop measures using prior experience. First, the alternativeusing the future to
explain the pastis not only unsettling, but also rules out prediction using observable variables.
Second, the quality of future jobs is hard to assess from extant records, and it is often difficult
to find any information at all on post-bank activities (especially in the private sector), while
background data are almost always available. Finally, we are interested in developing good measures of overall central bank conservatism, which may result both from career concerns and from
policy preferences which are induced or at least reflected by career backgrounds. Nevertheless,
the available future jobs data does help distinguish incentive and socialization effects, as I show
below in Section 3.5.
To measure the career background of a particular central banker at a particular time, I
classify his past jobs into six mutually exclusive and exhaustive categories: Financial (private
banking jobs), Government (bureaucrats outside the central bank and finance ministry), Finance
Ministry (bureaucrats in the finance ministry), Central Bank (staffers at the central bank), Economics (academic economists), Business, and Other (international organization officials and staff,
other academics, labor union organizers, journalists, etc.). 12 Most studies of political actors background use binary variables to capture such experience, but this practice has two key deficiencies:
it groups together specialists who have devoted their careers to one area with those who have
spent perhaps no more than a year in one place, and it overlooks changes in careers over time.
In contrast, I focus on the composition of each persons career over time. For each job category,
I calculate an experience score, which is the fraction of the central bankers career spent in that
job type as of his most recent appointment to a monetary policy making post. 13 To state this
formally, let j index central banks, let i {1, ..., I j } index central bankers, let t index time
periods (e.g., months, quarters, or years), and let d count days from a universal reference date.
Also let Careerij mark the start of is career, in days, let Appoint ijt be the day of is most recent
appointment to j, and let Jobsijd indicate the number of jobs i held on day d. Then define the

To improve the international comparability of the categories, I made substantial efforts to include only privately
owned and operated financial firms in the Financial category. State-run banks face very different incentives, and
virtually all individuals in the dataset who took a turn at such banks were career bureaucrats, not bankers. Hence
I include management of government controlled banks in the Government category.
The experience score methodology employed here should probably see wider use in the study of bureaucracy,
especially to test whether agencies have been captured by private interests. The notion that bueaucratic agents
often move through revolving doors to regulated sectors of the private economy is widespread (Stiglitz, Krugman,
other cites), but is seldom rigorously explored. And studies which do link agents past careers with their actions in
government tend not to take full advantage of the available data, using binary or categorical indicators of experience
types rather than finer grained measures of experience that distinguish dabblers from careerists. Perhaps this is
due to the perception that coding more detailed data would be more expensive, but this is not necessarily so. All
that is required is a record of each officials past jobs, with starting and ending dates, and software to tabulate
these data into experience scores. Given underlying histories, it is easy to produce simple quantities, like
the experience scores used here, as well as more complicated variables that weight experience over time, take into
account personal context (e.g., interactions based on personal characteristics), and capture contextual relationships.
Escore, the software I have written to accomplish these tasks on central banker data, can be applied to any other
bureaucracy. Hopefully this tool will encourage more scholars to investigate oft-invoked career effects in other
areas of policymaking. Escore runs in Gauss, and is available from http://chris.adolph.name.


financial experience of the ith central banker in the jth bank in period t as:

FinExpijt =



appointijt careerij .


GovExpijt , FMExpijt , CBExpijt , EcoExpijt , BusExpijt , and OthExpijt are defined analogously;
together with FinExpijt , they sum to one.
To produce a set of experience scores for an entire central bank over period t we need an
aggregation mechanism. Work on the Federal Reserve (Chappell, Havrilesky, and MacGregor
1993) suggests that not all central bankers have an equal voice in policymaking (in particular,
the Fed Chair is estimated to have the effective voting power of any two Governors), but it
will be hard to estimate voter weights without recorded votes, which are often unavailable or
uninformative. Likewise, modeling appointment and oversight of monetary agents with attention
to institutional interaction (as is state of the art in studies of the Fed; see Morris [2000] and
Chang [1998]) requires substantial country-specific modelling. Here, I aim for a broad sweep
across countries to establish the importance of career variables, and hope that this will serve as a
foundation for more nuanced country-studies. Hence, I simply average the career experiences of all
central bankers who, by virtue of their positions, appear to have significant influence on monetary
policy.14 (I weight the averages by the proportion of the period each member served; I call this
procedure tenure-weighting.) Where it is possible to combine central banker characteristics
in a single index, I summarize the insitutions characteristics by its (tenure-weighted) median
member, in the hope that the median voter theorem will offer some leverage on the preference
aggregation problem.
To define institution-wide experience scores formally, first let Duration t indicate the length
of t in days, and let Officeijt count the number of days i was in a monetary policy post at j during
t. Then define the financial experience of central bank j in period t as the weighted average of
individuals scores, where the weights are the fraction of the period each banker served:
FinExpjt =






GovExpjt , FMExpjt , CBExpjt , EcoExpjt , and BusExpjt are defined analogously. As for an
individuals experience scores, the experience scores of a given bank in a given period always sum
to one.

To determine which officials have voting authority on monetary policy questions, I turned to legal documents
from the various central banks, along data collected in Siklos (2002), Eijffinger and Geraats (2002), and Goodman
(1992). Two special cases are worth mentioning. The first is the FOMC of the US Fed, which has four rotating
members representing the regional Federal Reserve Banks. I determined which regional bank presidents were
voting members at any given time from the Federal Reserve Bulletin. The second case is Canada, which reserves
de jure monetary authority for the central bank governor only, but informally grants some power to a Governing
Council within the bank. Given the ambiguity of the Canadian case, I ran the analysis either including the entire
Governing Council, or excluding all members but the Governor. The result reported in the text fir the de jure
definition, and include the Canadian Governor only.


3.2 Data
The data consist of complete or near-complete career histories of about six hundred monetary
policy decision makers (e.g., governors, deputy governors, directors, and policy boards, or their
equivalents, where relevant) from twenty developed countries over the period 19502000. 15 For
each policymaker, the database includes all jobs worked, by type; starting and ending dates for
each job; all positions at central bank, with dates of service; educational history; birth, graduation, retirement, and death dates; and gender (95% are male). Data were collected by the author
from central banks archives, biographical dictionaries, web resources, and business periodicals
(see Data Appendix for sources). Career histories were then tabulated into the individual- and
central-bank-level experience scores defined in Section 3.1. Tabulated experience scores are available for various period lengths (monthly, quarterly, annually) and collections of central banking
offficials (e.g., all officials, just governors, etc.). In this paper, I focus on quarterly scores averaged
over all of a given central banks officials with de jure authority over monetary policy.
A large majority (about 83%) of all work done by central bankers was in government (including the finance ministry and the central bank itself), private finance, or economics (Figure 1,
top). This is a remarkable degree of convergence, given data on careers from university onwards
for hundreds of individuals scattered across twenty countries. Former bureaucrats are the most
common type of central banker, but less than half of past bureaucratic experience is in finance
ministries; the rest is spread over a variety of ministries often lacking any substantive connection
to monetary or economic policy. Private banking backgrounds are rarer than perceived, comprising only twelve percent of central bankers backgrounds, making it third-most common, after
bureaucrats and CB staffers.
The mixture of career types varies across nations. Some rely heavily on bureaucrats and
politicians to staff their banks; prime examples include Sweden, where parliamentary backgrounds
are common, as well as Belgium and Finland. Others depend more on financiers (New Zealand and
Denmark). The monetary policy authorities of France and Ireland are overwhelmingly veterans
of the Finance Ministry, while those of the United Kingdom, Canada, and Italy tend to be career
central bank staffers. The remaining countries tend to have more balanced boards, epitomized
by the US, Japan, Austria, and the Netherlands.
Looking at individual characteristics, rather than at central bank board averages, supports
the typology as well. At first appointment to a monetary policy position, the average central
banker was 47.8 years old, could expect to stay at the central bank for 6.1 years, and had spent 80
percent of his past career in just one of the sectors listed in Figure 1. Nine of ten central bankers
spent at least half their pre-appointment careers in one sector, while a third spent all of their
careers in just one type of job. Only 29 percent of freshman central bankers had ever worked
in a private bank, while 23 percent had worked in the finance ministry, 47 percent elsewhere in
government, and 23 percent in a private business. About two in five had worked previously as
central bank staff; one in five as an academic economist. Almost half (47 percent) had never

Countries include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and
the United States. For these countries, I identified a total of 721 monetary policy officials, and was able to
assemble reasonably complete career histories for 598 of these, at least through their time at the central bank. A
complementary database for developing countries is also being compiled.




CB Staff

Average Experience Score




Career Experience




CB Staff


Finance Ministry

(Not Fin Min)








Figure 1: Composition and evolution of central bankers career experience: Define career experience as the fraction of a central bankers prior career spent in a job type, averaged across a banks
monetary policymakers. The first plot shows that over the last half century, the past experiences
of central bankers in twenty industrial democracies can be described almost entirely as falling
within the state, central bank, private banking sector, and economics. The second plot shows
how the average background across these countries central banks evolved, month by month, over


had a job outside the financial sector or government (including the finance ministry and central
bank)which suggests most new central bankers would expect their next job, obtained perhaps
at age 54, to be in one of these places as well.
Returning to central bank level data, the bottom panel of Figure 1 traces the evolving mixture
of backgrounds within central banks over time. The most outstanding feature is the waning and
waxing of financial sector experience. Starting at an average of 17 percent of the cumulative
experience of the central bankers of 1950, financial experience steadily dropped until in made up
only seven percent of the backgrounds of 1970s central bankers. Then, in the first half of the
1980s, financial backgrounds shot up to their former highs, and have stayed around seventeen
percent ever since. The second notable trend is the steady growth in economics backgrounds,
totally absent in 1950, but fifteen percent of the past experience of central bankers in 2000. The
gains of financiers and economists have come primarily at the expense of bureaucrats, especially
those without finance ministry or central banking backgrounds. Over all, the public sector
experience of central bankers formed a majority bloc in 1950 (65 percent of all past careers),
grew to overwhelming dominance by 1979 (73 percent), then rapidly receded after 1980. In
2000, private sector experiencein finance, economics, and businessmade up 41 percent of
backgrounds, or twice the 1979 nadir.

3.3 The revolving door at the central bank

A central question for is whether a career bureaucrat can easily pass through the top of the central
bank on his way to a private banking job, or whether central bankers tend to return to the sector
from whence they came. In short, is the central bank an airlock or a revolving door? A set
of probit models shows what past career experience implies for post-central bank appointments.
First I construct two binary variables, FinJob i and GovJobi , that indicate whether a central
banker obtained a job of corresponding type after leaving the central bank. (Note that GovJob i
includes all government jobs, including posts in the finance ministry and central bank, unlike our
usual experience score categories. The rationale for contrasting these types in the first place rests
on the hypotheses that they differentially predict future careers in banking or government as a
whole.) I regress each of these indicators on the same six explanatory variables: pre-central bank
levels of FinExpi , GovExpi , FMExpi , CBExpi , and EcoExpi , along with the age of the central
banker at the end of his service to the central bank. (For the estimated coefficients from these
models, see the Data Appendix).
Rather than numb the reader with probit parameters, I present expected values that show
how the probability of a post-bank career shifts as the corresponding pre-bank experience score
ranges from 0 to 1. This is always good practice, but especially useful here because of a subtle
issue in the interpretation of composition variables in regression models. By definition, a central
bank(er)s experience scores must sum to one. Hence any hypothetical which alters one component score is incomplete if it does not specify which other scores are adjusted to maintain this
accounting identity. When multiple components enter a model separately, then, it is inappropriate to treat a single coefficient as a complete summary of the effect of a component score, since
there could be countervailing or reinforcing effects working through other parameters. To avoid
over- or understating relationships, I assume that a hypothetical increase in one career score is


Probabi- 0.6
lity of
Future 0.4
in. . .








Previous FinExp








Previous GovExp



Previous FMExp




Previous CBExp

Figure 2: The Revolving Door at the Central Bank. Expected values from probit regressions of
post-CB careers on pre-CB experience scores. Each plot varies the portion of the central bankers
past career in a particular sector. Solid lines show the expected probability of leaving the central
bank board for a government job (including the finance ministry or central bank staff) and dashed
lines show the probability of leaving for the finanical sector. The gray areas mark 95% confidence

balanced by proportional reductions in all other scores, thus preserving the logical requirement
that experience scores sum to one.
Before proceeding, the reader is warned that the data suffer from one notable problem:
missing data. While the database has fairly complete data on prior careers, future jobs are often
hard to document, and we cannot usually distinguish missing data on the dependent variable
from an absence of post-bank jobs of that type. There is no easy fix for this problem, and it
surely introduces bias into the results; at a minimum, fitted probabilities of future jobs are likely
too low on average (since many of the zeros are probably ones, but not vice versa). 16 Moreover,
this problem afflicts the different dependent variables to varying degrees. Government jobs taken
after central bank service are more likely to be recorded in the public record, and are more likely
to be noted in central bank archives. It is harder to find out whether central bankers took on
private banking roles after leaving the central bank; these jobs are seldom tracked by the central
bank, and are often overlooked by biographical dictionaries that emphasize public service. Web
searches turned up numerous cases where former central bankers joined private banks, raising
the suspicion that post-central bank financial jobs in the pre-internet era are undercounted.
Now to the results, starting with the clearest cases, former private bankers and (non-finance
ministry, non-central bank) bureaucrats. As expected, heavy experience in one makes a future
career in the other much less likely, shown by the downward sloping lines in the first two panels
of Figure 2. Conversely, one-time bureaucrats are likely to return to government after the central
bank, just as former financiers often pick up banking again (the upward sloping lines). These
revolving doors support the feasibility of career incentives.
Now consider our two ambiguous cases. In Section 2.3, I argued that central bank and finance
ministry staff may more easily join private banks than other bureaucrats. The third and fourth
panels of Figure 2 show this is the case. But note there is also a difference between the two types:

Constructing an appropriate imputation model is complicated by the difficulty of establishing any of the zeros
on the dependent variable with confidence. An exception is when central bankers die in office, but these cases are
surely not representative of other zeros, and are consequently of limited use in reducing bias through imputation.


central bank experience makes government jobs more likely, while finance ministry experience
makes them less so. While our findings on financial and government experience make intuitive
sense and seem likely to hold out of this sample, the career patterns of central bank and finance
ministry staff are likely to vary on a case by case basis. But for the data collected here, we
can conclude that the order of the career types based on their likelihood to lead to government,
rather than financial, future appointments is Fin FM CB Gov. We should expect the
same ordering of the effects of these career types on economic outcomes.

3.4 Career effects and the level of inflation

The first step in exploring the connection between central banker characteristics and monetary
policy outcomes is to look at the linkage between central bankers and inflation in the postBretton Woods era.17 To do this, I employ least squares time-series cross section regression with
standard errors corrected for panel heteroskedasticity (Beck and Katz, 1995). Linear regression is
appropriate since the dependent variable, logged quarterly inflation, is approximately normally
distributed (a few cases of deflation are omitted). I include country fixed effects to mitigate
omitted variable bias, and I include lags of the dependent variable. The estimating equation is
of the form
j yi,tj + i + X it + uit
yit =

where X it is a vector of covariates, is a vector of associated coefficients, i is a country fixed

effect, and uit is a normally distributed disturbance.
Model 1 regresses logged inflation on several career componentsfinancial experience, finance
ministry experience, economics experience, and government experiencewhile controlling for
CBI using an average of three well-known indices (the Cukierman, Webb, and Neyapti [1992]
index, with updated data from Maxfield (1997), the Grilli, Masciandaro and Tabellini [1991]
index, and the Bade and Parkin [1982] rankings). I also control for imports as a share of GDP,
which, according to several theories, should reduce the attraction of loosening the money supply
(Campillo and Miron 1997).18
Results are presented both in terms of estimated model parameters (Table 1) and counterfactuals calculated from the estimated model (Figure 3). 19 I focus on the counterfactuals because
they more transparently handle the problem of compositional explanatory variables described
in Section 3.3. We cannot read a single components coefficient as a first difference without
implicitly assuming that the increase in that category is made up by reductions in categories
with null effects (which may not even exist). The solution is to reduce all other categories in the
same proportion, and calculate expected values.
That is, the data analyzed in this section and the next cover 19732000, with the exceptions of ECB members
after 1997 and Spain and Portugal before democratic government (before 1979 and 1977 respectively).
For example, Romer (1993) argues that openness lowers the benefits of raising output through monetary policy
while raising the inflationary cost. Lane (1997) supposes the benefits of surprise inflation act through raising the
output of rigidly priced non-tradables; hence the more open the economy, the less the benefit of money surprises.
Substantial serial correlation can endanger the consistency of time-series cross section regressions that include lags of the dependent variable. Lagrange muliplter tests for serial correlation reject the null hypothesis of
autocorrelation when two lags of the dependent variable are included in the model, except in Model 4.











CBIj,t2 CBCCmed



DV: ln(Inflation)








ln it

ln j,t1
ln j,t2
Fixed effects
LM test (5% level 3.84)



Table 1: Natural log of inflation regressed on central banker characteristics, 20 countries, 1973
2000, quarterly. Least squares estimates with panel-corrected standard errors in parentheses.
ECB members excluded after 1997. LM test refers to a Lagrange Multiplier test for serial


Change in
Inflation 2

+1 sd FinExp


Years after ...


+1 sd GovExp


+1 sd FMExp


Years after ...


+1 sd CBExp

Years after ...

this text is invisible

{z filler

Change in

should not be seen}


+1 sd CBCC


Years after ...



Years after ...



+1 sd CBI



Years after ...

Figure 3: Effects of individuals and institutions on inflation. Change in inflation following a permanent 1 standard deviation increase in a career type, the career characteristics index (CBCC),
or central bank independence (CBI). Each solid line is a separate counterfactual; those in the
top row summarize model 1, while those in the bottom row show the implications of model 3.
When one experience score is increased, all other scores are reduced proportionately from their
means to maintain a sum of 1. Initial lags are set at mean observed inflation. All plots show
expected values as solid lines and mark 90% confidence intervals in gray. These intervals reflect
the cumulative estimation uncertainty produced by iterating the model through twenty periods.
In the final plot, the solid line marked cbi-3 refers to the average of three CBI indices, while
dashed line marked cbi-c refers to the CWN index alone.

Figure 3 shows counterfactuals calculated from Model 1 using this method. According to the
model, increasing financial experience by one standard deviation corresponds with a 1.1 point
reduction in inflation over a five year period. That is to say, if the government changed the
membership of the central bank board from one with 17 percent of its collective experience in
finance to one with 30 percent, inflation would drop by a little over a point after five years
with the new board in office. In contrast, increasing government experience by one standard
deviation presages a 1.7 point increase in inflation. Both findings are significant, substantial,
and match our expectations under either the incentive or socialization hypotheses. Turning our
two more ambiguous cases, we find finance ministry experience is associated with significantly
lower inflation (1.1 points), while central bank experience is associated with significantly higher
inflation (1.4 points). The effects of the career types are ordered as hypothesized based on career
transitions (from least to most inflationary, they run Fin FM CB Gov), supporting the
career incentive view.
The results from Model 1 suggest we can produce a single number summary of central bank
conservatism (at least as proxied by career effects) by simply summing experience in conserva-


tive job types and subtracting experience in liberal types. Define the Central Banker Career
Characteristics (CBCC) index as:
CBCCijt = FinExpijt GovExpijt + FMExpjt CBExpijt


Logically, the index ranges from -1 (all liberal career experience) to 1 (all conservative). As
discussed in Section 3.1, since this is a single dimension proxying the policy positions of central
bank boards, taking the (tenure-weighted) median for each country-period makes more sense
than the mean. Over the 19732000 period, CBCCmed averaged -0.17 (s.d. = 0.53), and varied
substantially over time within countries and even more so across countries. 20 Overall, the median
member of the average central bank first shot upwards on the CBCC index, from -0.35 in 1973
to a high of -0.01 in 1988, then drifted back to -0.16 in 1993, before rising again to -0.05 in 2000.
Model 2 regresses logged inflation on CBCC, controlling for CBI. I obtain similar results
using either mean or median CBCC, and either the combined CBI index or just CWNs timevarying version. The plot in the center of the second row shows that a one standard deviation
increase in the CBCC of the median central banker preceeds a 1.4 point decline in inflation over
five years.21 This result is highly significant, virtually identical to the effect of a one standard
deviation increase in CWNs CBI index (1.5 points), and somewhat smaller than the effect of the
combined index (2.2 points).
Since we would expect central banker preferences to matter more when central bankers have
greater autonomy, Model 3 adds an interaction between these two variables. Though correctly
signed, this interaction is far from significant. I suspect this puzzling non-finding can be resolved through further work on the interaction between central bank preferences and the relevant
range of institutions (including not just CBI but also labor market organization and government
partisanship; see note 27). In the meantime, CBCC could serve as a provisional measure of
conservatism, especially since it explains inflation about as well as CBI. (CBCC also has the
distinct advantage of varying over time, and is easy to recalculate as the leadership of a central
bank changes.) And since CBI and CBCC are uncorrelated (in this sample, r = 0.02 for the
combined index, and 0.01 for CWN), the strong showing of CBCC casts doubt on the assumption that CBI alone is an adequate proxy for monetary policy non-accommodation. Preferences
matter, and we ought not neglect them in favor of models relying only on institutional variables.
Empirical results are most convincing when they meet our prior expectations, are robust
to plausible respecifications, and resistant to outliers. The key findings presented here perform
well on all three criteria. First, they accord with the theory articulated in Section 2. Second,
the relation between CBCC and inflation persists when we alter the right-hand side variables
in various ways. For example, we could include a control for G7 average level of inflation to
allay concerns that the relations among CBCC, CBI, and inflation are a spurious result of trends

Examining monthly CBCC med data over 19732000, in the average country, the standard deviation over time
was 0.35, while for the average time period, the standard deviation across countries was 0.53. Including further
time periods (e.g., going back to 1950) not surprisingly raises the proportion of variance explained within countries.
The choice of equal weights for each component in CBCC is made for simplicity, but some plausible alternatives produce substantively similar results. For example, if we give only half weight to the two more ambiguous
categoriesFMExp and CBExpthe effect of one standard deviation higher CBCC is -1.1 points of inflation, with
a 90 percent confidence interval of -0.3 to -1.8.


in these variables. As Model 4 shows, our explanatory variables remain potent even when this
source of variation is removed. Likewise, we could change our measure of CBI to include just
the CWN index, include measures of the proportion of central bankers appointed by left or right
governments, or omit the imports variable, and obtain substantively similar results. Finally, the
key relations described here do not depend on a few influential observations. Since least squares
is notoriously vulnerable to outliers, I re-estimate equation 3 using robust regression techniques,
and again find similar results.22 For a detailed summary of these and other robustness checks,
see the Data Appendix.

3.5 Career effects on monetary policy: Native and induced preferences

Central bankers past careers correlate with inflation outcomes, but is this the result of socialized
policy preferences, career concerns, or both? To get leverage on the question, I test whether
factors that should increase the strength of career incentives augment the effect of past experience
on inflation:
Future careers. As the putative reward for granting shadow principals their preferred
policies, post-central bank jobs in finance and government may reflect successful career-forpolicy-bargains leading to lower or higher inflation, respectively. If we suppose (consistent
with the model of monetary policy under career effects offered in the Model Appendix)
that career incentives augment socialized preferences, then we should see stronger effects
of career variables on central bankers for whom future jobs materialized.
Public votes. The model of career incentives discussed in the Model Appendix assumes
shadow principals can observe the policy decisions of particular central bankers, at least
after the fact. This is the case where central banks eventually publish their voting records,
or where a single official makes policy, but secret voting procedures should hamper the
career rewards mechanism.
Central bankers ages. Age may have two contervailing effects on career experience.
Since younger central bankers have more career left to worry about, they should face
stronger career incentives than central bankers nearing retirement; central bankers in the
last period of their careers face no career incentives at all. However, a 65 year old
central banker with, say, the same FinExp score as a 40 year old has spent more years
in the financial sector, which augurs for stronger socialization effects among older central
The simplest of these test to implement is for the effect of public votes. Let PV jt be 1 for
countries that (eventually) publish monetary policy voting records or have a single monetary
decisionmaker, and 0 otherwise. A multiplicative interactive term, CBCC med PVj,t2 , should
augment the effect of CBCCmed
j,t2 if public votes help shadow principals apply career incentives,

To test the resistance of the model to outliers, I re-estimated Model 2 using an M -estimator (specifically,
one based on Hubers influence function). Using this less efficient but more robust technique, I obtain an effect
parameter of -0.043 (s.e. = 0.013) for CBCC and -0.177 (s.e. = 0.062) for CBI. Both results are significant and
in accord with the LS results. Robust estimation of Model 1 also supports the LS findings. (For an accessible
introduction to robust regression relevant to comparative political economy, see Western (1995).)


but have no effect if career effects work only through socialized preferences. The other two tests
require somewhat more complicated measures, since they involve individual level microinteractions rather than institution level interactions. 23 To capture the effect of youth on career effects,
we need to multiply a measure of youth with individual level characteristics, then aggregrate up
to the central bank level:
= median(CBCCijt YY65ijt , wijt )


In this case, our measure of youth is years younger than 65, YY65 ijt = max(0, 65 Ageijt ).
If incentives overshadow native preferences, this variable should carry a negative coefficient,
augmenting the effect of CBCCmed
j,t2 . But if socialization weighs more heavily, the coefficient
should be positive, since an older central banker with the same CBCC score as a younger official
has had more time to be socialized. Finally, to see whether career effects are stronger when
central bankers are known to have returned to financial or government jobs later, we multiply
the binary future job variables described in Section 3.3 by the relevant past experience. Because
of the ambiguity of finance ministry and central bank experience, I include it in both categories:
= median[FinJobij,t+ (FinExpijt + FMExpijt + CBExpijt )
+GovJobij,t+ (GovExpijt + FMExpijt + CBExpijt ), wijt ]


As with the other variables, a negative coefficient augmenting the effect of CBCC med
j,t2 provides
evidence that career incentives are at work.
I included each of these terms seperately in the inflation model, and report the results in
Table 2. The signs of the interactive terms are appropriate and the precision of the estimates
reasonably good for future jobs and public votes, but since interactive coefficients are easy to
misread, I focus on two kinds of counterfactual calculated from the estimated model. One is a
first difference that shows the effect of a standard deviation increase in CBCC under conditions
that either discourage or encourage incentives. The second is the extra effect of incentives,
that is, the difference in differences.
Given the same one standard deviation increase in median CBCC, inflation falls further when
the median central banker took a job later in finance than when he did not (1.9 points versus 1.4;
left panel of Figure 4).24 In both cases, the reduction in inflation is significant, suggesting that
socialization plays a role regardless. A look at the difference in differences (right panel) shows

A common way to investigate the contingent nature of relationships among variables is to employ interation
terms. If we suspect that the relation between X and Y depends also on the level of Z, we will usually specify
Y = f (X, X Z). The same technique can be used here to investigate the contigencies that arise from having a
particular level of, say, FinExp, given a certain degree of CBI, or from any other interaction taking place at an
institutional level. However, where the contingency arises at the level of individual central bankers, we must take the
interaction into account before aggregating across the central bank. Hence, to consider the effect of each bankers age
on the contribution of their financial experience to policy, we construct FinExpAgejt = a(FinExpijt Ageijt , wijt ),
where a is an aggregating function (either a weighted mean or a weighted median) and w are the weights. (In
general, of course, FinExpAgejt 6= FinExpjt Agejt .)
To calculate the appropriate hypothetical level of CBCCFJ med
j,t2 , I assume the median central banker spent
his career in only two sectors, government and private finance. If CBCC = 0.35 (one standard deviation above
the mean), this implies a hypothetical FinExp = (CBCC + 1)/2 = 0.675, which in this case is also the value of
j,t2 .





CBCCmed PVj,t2




Fixed effects
LM test (critical = 3.84)


DV: ln(Inflation)







Table 2: Natural log of inflation regressed on central banker characteristics, 20 countries, 1973
2000, quarterly: Interactive models. Least squares estimates with panel-corrected standard errors
in parentheses. ECB members excluded after 1997. LM test refers to a Lagrange Multiplier test
for serial correlation.


No future jobs

Difference, having

Future jobs

a future job & not

Secret votes

Difference, public

Public votes

& secret votes

Old (65+) CBer

Difference, young

Young (45) CBer

& old CBers

No jobs or votes

Difference, jobs

Both jobs and votes

& votes combined

Extra inflation reduction, five years after +1 s.d. in CBCC

Change in inflation five years after +1 s.d. in CBCC and ...

Figure 4: First differences (left) and difference in differences (right) from interactive career effects models of inflation. Circles and triangles mark point estimates, and horizontal lines 90%
confidence intervals, for counterfactuals calculated from the models estimates shown in Table
2. Results on the left are five-year first differences assuming a one standard deviation increase
in CBCC, but making varying assumptions about the median central bankers future jobs, vote
publication, and age. Circles label scenarios that should increase career incentives; triangles ones
that suppress them. Results on the right are differences of the corresponding categories on the

that the added impact of future jobs is also significantly different from zero (at the 0.1 level),
supporting the presence of incentive effects. Public votes had a similar effect: CBCC lowered
inflation rates whether votes were secret or not, but lowered them substantially more when votes
were eventually revealed (2.0 points versus 1.4). However, the extra impact of public votes is
not quite significant. Youth, on the other hand, appears to have a null effect: central bankers
young and old yielded the same reduction in inflation for an increase in CBCC. 25 As the right
panel shows, this null result is imprecisely estimated, so we cannot say with much certainty it
is actually zero. But we can say that it is consistent with socialization and incentives sharing
roughly equal responsibility for career effects.
Finally, I estimate a model with both vote and future job interactions included. (Adding the
age interaction produces similar parameter estimates but larger standard errors, and is discarded
on efficiency grounds.) Using this model, I find the effect of CBCC is 56 percent larger when
votes are public and the median banker takes a financial job than otherwise. The extra effect of
the combined interactions is also significantly different from zero. While I do not consider later
jobs or revealed votes perfect proxies of career incentives, these finding suggests the two main
mechanisms offered by this paper operate on the same order of magnitude. Central bankers
career backgrounds appear to affect both native and induced preferences over monetary policy.

I experimented with various other transformations of age, but always obtained substantively similar results.


4 Concluding remarks
With a few exceptions, political economists have given short shrift to the role of central bankers
preferences in explaining differences in monetary policy. To remedy this oversight, I have presented a theory, data, and empirical tests which suggest that central bankers career concerns,
observable in their career histories, guide their behavior in office. The financial sector, government, and economic experience of central bankers appear to affect inflation as much as the most
commonly used measure of monetary regimes, central bank independence. Some of the effect
of central bankers careers is likely a result of socialization and selection within the financial
sector and government, but several pieces of evidence suggest that prospective career hopes play
a significant role.
To the extent career effects are a reaction to career incentives set by the government and
private banks, legally-mandated central bank independence builds only parchment barriers
between government and central bank. True, laws may help central bankers act without the
constant threat of easy government vetos. But as long as monetary agents aspire to further
wealth or office, paper autonomy alone cannot guarantee the insulation of monetary policy from
outside interests. Whether one advocates or opposes such insulation, it is clear that the monetary
policy interests and ideas of central bankers and governments should no longer be shoved under
the CBI rug.
The immediate purpose of this research project is to bring preferences back in to the study
of central banks, but models relying on career concerns may be useful in the study of delegation
broadly. Career effects and incentives may permeate regulatory agencies, courts, and political
parties throughout the world. Using career incentives to explore preferences offers an alternative
to models which blithely deduc[e] officials preferences from the attributes of their agencies,
without considering how preferences develop informally and over time. (Schneider, 1993) At
the same time, attention to career paths can help researchers sort through relationships among
competing principals and organizations using the characteristics of agents themselves. Research
along these lines can enrich our understanding of what happens within and across institutions
by bringing the political actors that inhabit them back to center stage.


Appendix A: Model Appendix

Monetary policy delegation with career concerns
To illustrate the career effects argument, I develop a simple model of monetary policymaking
which builds on the standard model by treating the monetary agent as one of a series of appointees, each with his own career track and ambitions. This constitutes a career concerns
approach to monetary policy delegation, akin to models used to study managerial labor markets.26 Career concerns models have much to offer political science, particularly in the area of
delegation. Ambitious policymakers care not only about the policy discretion or rents they can
extract today, but also about their ability to advance to more prestigious, powerful, or lucrative
posts tomorrow. Principals can exploit career anxiety to reward or punish their agents: compliance wins a plum appointment, shirking a cold shoulder. But shadow principals waiting in the
wings can play the game, too. An organization (such as a party, interest group, firm, or rival
bureaucracy) possessing no present contractual relationship with the agent could still informally
promise a future appointment which beats the original principals offer; in exchange, the shadow
principal receives a better policy today. In this way, varied prospective principals can exert pressure on the agent, whose career path links institutions lacking any formal connection. If todays
central banker is tomorrows private banker, todays monetary policy may belong to the banks
as well.

Economic assumptions
The initial set-up of the game mirrors Barro and Gordon (1983), Rogoff (1986), and Lohmann
(1992). Assume the economy follows a Lucas supply function,
y = w + z,


where y is economic output, is inflation, w is the wage level, and z is a normally distributed
shock with mean zero and standard deviation z . The labor market is characterized by pricetakers who accept w = E().27 If the monetary authority has quadratic utility over inflation
and output y, with ideal output y and ideal inflation of zero,
U = (1 )(y y)2 2 ,


om (1982) introduced this approach, which ordinarily focuses on encouraging effort or skills acquisition,
rather than issues of policy discretion. Career concerns models assume a principal-agent problem (i.e., monitoring
of effort is imperfect) which is at least partly resolved by the agents concern for future employabilityin his
current firm or elsewherewhich in turn depends on observable outputs from his labors (for an example involving
CEOs, see Gibbons and Murphy, 1992). Tirole (1994) suggests that since public sector actors accrue less monetary
compenstion than private managers (especially in the sense of receiving only a small share of their marginal
product), career concerns loom at least as large in government agencies as in the private sector.
Work on labor-market/central-bank interaction casts doubt on the applicability of this assumption, especially
outside the US (see, e.g., Iversen [1998a,b and 1999], Hall and Franzese [1998], Franzese [1999], and Cukierman
and Lippi [1999]); I use it here as a starting point, and plan to build more plausible assumptions regarding the
structure of the labor market and dynamics of wage setting into future versions of the model.


then monetary policy will be subject to an inflationary bias inversely related to the conservatism
of the policymaker, . In turn, equilibrium output is unaffected by money on average, but the
variance in output in response to shocks grows with the conservatism of the monetary agent:


= (1 )
z , y = z.

This sets up a trade-off between the level (and variance) of inflation and the variance of the
real economy, over which different policymakers may have different preferences, governed by ,
y, and z . Note that if governments could credibly commit to a conservative monetary policy
(one based on a high ), they would enjoy lower inflation and the same output on average. But
governments will be hard pressed to keep their commitments when a deviation from the rule may
keep them in power, a contingency other actors anticipate. This is the time inconsistency problem
that led Rogoff to suggest delegation to a conservative, independent central banker. (In practice,
this would mean choosing an agent who has conservative beliefs, or it could mean relying upon
other factors to induce conservative behavior.) Of course, since conservatism comes at the price
of greater economic instability, governments will not want an ultraconservative central banker,
either. All else equal, different governments will prefer agents with different preferences, though
more conservative ones than the government has.
Based on these well-known results, we can already state the implications of career-socialized
preferences. To the extent a career in finance produces greater inflation sensitivity, a central
banker will have higher i , and will thus produce lower inflation and higher real economic variability. It is crucial to underscore that this is not an implication of independence alone, but of
independence plus conservative preferences; by explaining where those preferences originate and
how they may vary, the socialization hypothesis is a crucial adjunct to the Rogoff model.
Establishing the effects of career incentives requires a further generalization of the model, to
which I now turn.

I generalize the game to include monetary agents of different types. Some agents care most
about policy, others wealth, and still others political office. Agents may also have different
personal beliefs about the appropriate course of monetary policy, and different forms of human
and social capital which make them more or less suitable for other kinds of future employment.
From this universe of potential agents, the government delegates monetary authority to a
single central banker who enjoys legal independence to set monetary policy as he wishes, including making (unwritten and legally unenforceable) arrangements to exchange monetary policy
influence today for career favors tomorrow.
Central banker i has a three-period career. Period 0i is always spent outside the central
bank, for example in the financial sector or government. The government appoints the central
banker to set monetary policy in period 1i. In the last period of his career, period 2i, a central
banker may either take a job outside the bank or continue as monetary policy agent.
Central bankers derive utility from policy itself ( and y), from wealth-enhancing private
sector jobs (m), and powerful government positions (r). The relevant portions of the ith central




, ,

, ,


, ,

, ,


1 1 1
, ,

, ,

Figure 5: A typology of central bankers: A central banker approaches an ideal type when the
quantities in the corresponding box are high. is the weight on office rents in the central
bankers utility function, the weight on wealth, and the weight on inflation relative to the
real economy.

bankers utility function are:

Ui = (1 i )(y1 yi )2 i 12 +i (1 i )(y2 yi )2 i 22 + i m + i r
} | {z }
current policy

future policy


future jobs

Depending on the value of these parameters, a central banker may be principally concerned with
policy, wealth, or rents from political office, and with respect to policy may be either conservative
or liberal. This suggests six central banker ideal types, summarized in Table 1.
To keep things simple, I assume that the central banker makes his final choice of by calculating the value of which, when plugged into Equation 9, will maximize his utility according
to Equation 10, taking into consideration both career side-payments (m or r) and the central
bankers true policy preference (i ). In other words, the prize in this game is the policy parameter
, ultimately chosen by the central banker, which in turn yields and y according to equation
There are two other players in the game, the financial sector (F) and the government (G),
both of which are treated as indefinitely-lived unitary actors (i.e., they do not change over the
course of the game). Each receives utility from policy, and loses utility by doling out positions
(since this incurs an opportunity cost). F and G have no legal role in setting , but may make
promises of m or r to the agent in exchange for the chance to choose the equilibrium level of
and thus . Their utility functions are similar:
UF =

Ft1 (1 F )(yt yF )2 F t2 F mt ,


Gt1 (1 G )(yt yG )2 G t2 G rt .


UG =

I assume F > i > G to focus on the case in which a.) tension exists between the governments monetary preferences and those of more conservative financial sector, b.) the government


Fin (0a)

CB (1a)
Fin (0b)

Fin (2a)
CB (1b)
Gov (0c)

Fin (2b)
CB (1c)

Gov (2c)


Figure 6: Example career tracks of successive central bankers. Cell entries show the location of
each player in each period (either the financial sector, Fin; the government, Gov, or the central
bank, CB. In parentheses are shown the career-period number and agent letter; hence at time 1,
player b is in period 1 of his career and serving as central banker while player a is finishing his
career up in the financial sector.

attempts to stave off the temptations of monetary policy through delegation to a more conservative, legally independent central banker, but c.) this banker is still not as conservative as the
financial sector desires.

Play of the game

The game takes place over an indefinite period, with each central banker serving at most two
periods. To understand the policies and career tracks supportable in equilibrium, it is necessary
to consider the play of the game over the latter two periods of a central bankers career:
Period 1i
F offers CBi a job in Period 2i worth m
in exchange for CB i s promise to set policy according
to F in Period 1i.
Simultaneously, G offers a job in Period 2i worth r in exchange for CB i s promise to set
policy according to G in Period 1i.
Subsequently, CBi chooses a policy trade-off {i , F , G }. Policy choices result in
and y .
same-period economic outcomes, 1i
Period 2i
F and G decide whether to make good on their offers, choosing m {0, m}
and r {0, r}.
CBi chooses among his available career options, and either stays at the central bank or
heads to the financial sector or government. If CB i stays at the central bank, he sets period
and y result. Otherwise, the government
2i monetary policy according to = i , and 2i
appoints a new central banker, and the game begins again.

Observers of politics often assume that organizations can consummate policy-for-career-rewards
bargains. A game theorist, however, would wonder how these deals can stick. Why dont organizations leave agents hanging after receiving the policy they want? Repeated play offers one way

out of this conundrum, as we will see below. Whether this is the right explanationand whether
career deals actually stickremain empirical questions.
In the one-shot version of the game described above, would-be shadow principals face a time
inconsistency problem. Even when Pareto superior outcomes are possible through job-for-policy
bargains, once the second period is reached, the offeror has no incentive to pay, so central bankers
would refuse to make deals in the first place. However, a form of the folk theorem applies to
repeated games played by long- and short-run players (Fudenberg, Kreps, and Maskin, 1990).
Provided the long-run run players (F and G) play last in the stage game, as they do here,
reputational concerns can enforce cooperation (assuming short-run players are aware of the past
behavior of long-run players). Since shadow principals who want to deal with todays central
banker will also want to deal with tomorrows, worthwhile bargains are in equilibrium, so long
as there are gains to trade.
To characterize equilibria allowed by the folk theorem, we must identify Pareto improving
job-for-policy tradesjobs offers which are both feasible (the offeror would be willing to trade the
job for policy) and acceptable (in the sense of being the best option before the central banker). For
example, the financial sector will only offer jobs that cost less than the policy which would have
been implemented otherwise; a central banker will only accept jobs that provide more utility than
either independent policymaking or any counter-offer from the government. Given the actors
preferences, there may be no such offers (in which case the banker implements i ), only one offer
(which the banker accepts), or two equally good offers (a knife-edge case of little interest).
For a formal characterization of equilibrium in this game, see the final part of this appendix,
Characterizing equilibrium. The next section provides an intuitive view of the implications of
this game for monetary policy choices.

Comparative statics and empirical implications

The easiest way to understand the empirical implications of the model is to compare equilibria
that result when different types of central bankers act as the agent. To illustrate comparative
statics, I use graphics that divide up the parameter space according to the policy the central
banker will adopt at each point in that space: his personally prefered policy, the financial sectors
policy, and the governments. These diagrams demonstrate that agents with preferences typical
of a financial career will implement the financial sectors preferred policy, and vice versa for
government types.
First, we explore the effects of different central banker preferences on the monetary policy
outcome, holding fixed the preferences of the financial sector and government. Figure 7 shows
which sector will win the monetary policy auction given central bankers with varied tastes for
policy, political office, and private banking positions, along the lines sketched in Figure 5. Focusing on the middle panel, which depicts the case of a central banker with moderate monetary
policy preference, note that when the central banker cares more about winning a government post
(has higher i ) the government tends to prevail in monetary policy, but when the monetary agent
cares more about financial sector rewards (has higher i ), private banks win. But if the banker
cares little for either kind of reward, then he follows his own policy preferences and remains in
the central bank.


Liberal CB
i = 0.4

Moderate CB
i = 0.6


Officeseeking (i)









Officeseeking (i)


Desire for Office (i)

Conservative CB
i = 0.8




Desire for Wealth (i)


Wealthseeking (i)

Typical government type:

dovish to slightly hawkish on inflation,
prefers gov to fin jobs
adopts Gov monetary prefs







Wealthseeking (i)

N Typical financial type:

strong inflation hawk,
prefers fin to gov jobs
adopts Fin monetary prefs

Figure 7: Who sets monetary policy? Monetary policy according to central banker preferences
Shaded regions indicate whose monetary preferences the central banker will adopt, as the indicated parameters of the model are varied; this is also the sector in which the central banker
will work in the next period. Fin indicates the financial sector, Gov the government, and CB the
central bankers own preferences. The darker the region, the less conservative the policy implemented. In the final plot, a thin, barely visible stripe extends down along the vertical axis to
the origin from the CB region (i.e., a central banker with no career concerns always implements
his own policy preferences). Typical outcomes for government types () and financial types (N)
are shown. For all plots, I assume that F = 0.9, G = 0.3, F = G = 0.25, yi = yF = yG = 0.2,
i = 0.95, and z = 1.

Looking from left to right across the panels shows what happens when we consider the range
of central bank inflation preferences. Four patterns emerge: 28
1. Regardless of the central bankers preference over policy, any outcome is possible provided
the right career incentives. In particular, the corner cases are always the same: an agent
who wants office but not wealth always sides with government, an agent who wants wealth
but not office with the financial sector, and an agent who cares for neither implements his
own preferred policy.
2. Career incentives and central banker inflation preferences interact, so bargains are easier
the closer the agents preferences are to the principals. Hence a conservative central banker
must strongly prefer government advancement to financial sector jobs if he is to make a
career deal with the government, while a wider range of liberal or moderate central bankers
would accept the governments offer.
All conclusion drawn from this section depend, of course, on the specific values of parameters we do not vary.
For the most part, this is a fairly minor issue, since reasonable ranges of the parameters have been chosen and
changing them holds no surprises.


3. Over the range of central bank preferences shown, opportunistic central bankers, who are
equally and substanstially attracted to private and government posts, always side with the
financial sector, which offers a bigger reward ceteris paribus. This follows from assuming
monetary policy affects the level and variance of inflation, but only the variance of output.
Thus, unless the economy fluctuates wildly ( z is large), the financial sector stands to win
or lose more by intervening in monetary policy that the government, and is willing to pay
more for policy as a result.
4. Central bankers are truly independent only when their career concerns are minimal. This
holds in cases where the costs of job offers ( F and G ) dispersed across whole organizations
are (reasonably) assumed to be smaller than their concentrated benefits to agents ( i and
i ). I relax this assumption presently.
Together these patterns suggest that financial type central bankerswho prefer financial sector
jobs and espouse hawkish inflation viewswill consummate career-for-policy bargains with the
financial sector, while government typeswho prefer government posts and have inflation
preferences ranging from dovish to slightly hawkishwill accede to government demands to
advance their careers.
Figure 8 shows how the hiring costs of government and private banks affect their ability
to influence monetary decisions across the range of central banker types. The columns of plots
correspond to the policy preferences of the central banker, as before. But now the rows of plots
reflect whether the agent is office-, policy-, or wealth-seeking, while the axes show the cost of
hiring for the financial sector (vertically) and government (horizontally). Hiring costs encompass
a range of concerns, including the central bankers potential productivity in a sector (based,
perhaps, on his human capital and accumulated social networks) and the size of the organization
across which the costs and benefits of the bargain are spread. Lower hiring costs make job-forpolicy bargains easier to consummate.
All plots demonstrate that ceteris paribus agents who can be hired cheaply by one sector but
dearly by another will side with the cost-effective sector. Where costs are closer to equality, the
agents preferences usually tip the scales. The exception is when strong career preferences are
reinforced by congruent policy biases (liberalism combined with office-orientation or conservatism
with wealth-orientation), in which case agent preferences tend to overwhelm all but the largest
disparities in hiring costs (as in the top left and bottom right plots).
To the extent that financial types are more easily re-hired by the financial sector, and government types by the government, these comparative statics reinforce the impression that monetary
policy will be true to central bankers types. But consider for moment an appointee who does
not exactly conform to type: suppose the government appoints a career bureaucratic with political aspirations but conservative inflation preferences. This government is following Rogoffs
recommendation to appoint a more conservative central banker, but the agents career concerns
undermine his independence from the government. When in economic trouble, the government
can employ career leverage to get around the central banks nominal independence. As the topright plot shows, this kind of agent will side with government in the (more likely) case that
government job offers are less costly than financial ones; this central banker is marked a. In
contrast, a conservative financial type will strike a career bargain with the financial sector, as the

i = 0.4

i = 0.6








i = 0.2
i = 0.8

Private bank hiring cost (F)











Government hiring cost (G)















i = 0.1
i = 0.1

i = 0.8


















Typical government type:

dovish to slightly hawkish on inflation,
prefers gov to fin jobs,
more easily employed in Gov
adopts Gov monetary prefs











i = 0.8
i = 0.2









N Typical financial type:

strong inflation hawk,
prefers fin to gov jobs,
more easily employed in Fin
adopts Fin monetary prefs

Figure 8: Who sets monetary policy? Monetary policy according to career-bargain costs. Shaded
regions show whose monetary preferences the central banker will use, according to the model, as
the indicated parameters are varied; this is also the sector in which the central banker will work
in the next period. Fin indicates the financial sector, Gov the government, and CB the central
bankers own preferences. The darker the region, the less conservative the policy implemented.
Typical outcomes for government types () and financial types (N) are shown. Also demonstrated
is that for otherwise identical conservative agents, different career goals can produce different
policy outcomes (contrast a and b). For all plots, F = 0.9, G = 0.3, yi = yF = yG = 0.2,
i = 0.95, and z = 1.


banker labelled b in the bottom right plot shows. Thus even with a legally independent central
bank, central bankers who prefer financial sector jobs will produce more conservative policy than
those who prefer government jobs.
Finally, two simple implications of the model should be noted. First, if the central banker
has zero concern for political office or private jobs, then he will always implement his preferred
policy. To the extent that central bankers policy preference reflect career socialization, then,
financial types will still adopt conservative monetary policy. (Note, however, from the middle row
of Figure 8 that even a modicum of career concerns might be enough to shift policy decisions.)
Second, even if central bankers exhibit career concerns, all careers come to an end. Central
bankers approaching their retirement have little concern for job-policy bargains, and can again
be expected to implement their own preferred policies.

Caveats and extensions

A key assumption in the model is that both the financial sector and the government are
indefinitely-lived unitary actors. While financial sector firms might foresee indefinite lives, they
are not generally unified in behavior or interests. Any given firm could hope to free-ride on
another firms efforts to buy monetary policy influence through job offers. There are several
ways this problem could be solved, at least in part: 1.) Since banks are playing a repeated game
with each other, cooperation around a number of equilibria in the job-for-policy game may arise
through the threat of future defection. To consider just one of the many possibilities, banks may
focus on the equilibrium in which each bank offers a job-for-policy bargain to all of its former
employeers on their appointment to the central bank. 2.) Absent cooperation, the largest bank
may be big enough to offer some level of job-for-policy bargains, though perhaps with suboptimal m
(i.e., the largest bank may be an Olsonian privileged group). 3.) Central bankers who
successfully carry out financial sector requests may be sending a signal to banks which makes
them more desirable as senior members. 29 These are merely speculative explanations; for the
remainder of the paper, I focus on whether policy appears to be set in a way consistent with
financial sector influence through career paths, and leave the mechanism by which financial sector
coordination might occur to future work.
Democratic governments, on the other hand, may be unitary or not (in the case of coalition),
and do not play uninterrupted for all time. Instead, we might identify as long-run players each of
the major parties or enduring coalitions which alternate in office. For example, we might have G L
and GR which alternate in office with probability p at set election times. We might also suppose
the state of the economy influences election outcomes, so that p = f (, y). Perhaps central
bankers bargain with the party that appointed them, and expect no payment of government
jobs when that party is out of officeunless, perhaps, the central banker switches to policy
preferred by the opposition party. Hence pre-electoral uncertainty reduces the expected return
on bargains with the government (e.g., E(r) = p
r ). As transition to a new government grows more

For example, central bankers may reveal some privately desirable characteristic through pushing price stability
(such as loyalty to the bank, belief in conservative monetary principals, or concern for investors). Alternatively,
placing an esteemed central banker on a banks board may signal clients of the banks clout or resources, but there
may be less benefit if this former central banker is associated with failed or inflationary policies, or is not widely
regarded as having financial expertise.


likely, bargains with the government must include an ever larger risk premium, lest the banker
decide to side with the incoming government (as in Alt, 1991) or the financial sector. Since
accommodating monetary policy may be key to the governments re-election election hopes, a
larger payment seems quite likely, but whether it will be enough to prevent the central banker
from hedging his bets depends on just how (un)likely re-election is. 30
This model could be usefully extended in several ways. As the forgoing discussion suggests,
adding elections to the model may add important dynamic nuances to central bankers motivations. Second, one could include a richer model of the labor market, in which wage bargaining coordination produces strategic interaction between wage-setters and the central bank, as in
Iversen (1999) or Franzese (1999,2001). Finally, one could add an explicit model of central banker
appointment, re-appointment, and dismissal. To do this, it would also be useful to treat the true
preferences of the central banker ( i ) as uncertain from the governments view. Governments
appointing central bankers will aggregate all known information about a candidateincluding
career characteristicswhich may convey information on the candidates preferences over policy
and over career inducements. As governments update their knowledge of i , they may decide to
retain or dismiss CBi (at some cost), while the agent may set policy strategically to influence
this learning process. I leave these extensions for future work.

Characterizing equilibrium
Define the difference in player ks utility across policies 1 and 2 as k (1 , 2 ) = E(Wk (1 )
Wk (2 )). Wk denotes the policy terms of ks utility function subject to job-for-policy trades; for

central bankers, this amounts to Wi (1 ) = (1 + i ) (1 i )(y yi )2 i 2 , since the price
CBi pays for an outside offer in period 2i is not one but two periods of policy discretion. Yet for F
(and analogously G), WF (F ) = (1F )(y yF )2 F 2 , since the bargain only buys the present
periods policy; another bargain with CB i+1 is needed to secure next periods policy. Define the
reversion policy from Fs view, which obtains when F makes no offer, as RF = E( |w
= 0).
Using these definitions, we will characterize the equilibrium behavior of F; the equilibrium offer
of r by G is defined analogously.
The folk theorem for games with short- and long-run players suggests F will offer m
[m, m].
The upper bound is the most F can credibly offer. The lower bound, m, reflects that to win the
auction, F must offer more (in CBi s view) than either G or independent action. In words,
Fs added utility ,
m = from
policy control

i s added utility from, CBi s added utility from
m = max CBindependent
best alternative bargain

Specifically, CBi knows that regardless of how much F promises (in Period 1i) to offer in
period 2i, the most F will be willing to pay once 2i is reached is the one-period value of the

Career incentives thus bear on the unanswered question of whether political-economic cycles can work through
monetary policy when central banks are legally independent. Alesina and Roubini with Cohen (1997) show postelectoral partisan cycles in time-series cross section studies of growth, inflation, and unemployment in industrial
democracies, but despite their expectations, these cycles seem unaffected by the presence of a legally independent
central bank (i.e., interactions between CBI and Alesina and Roubinis partisan cycle find no suppressing effect in
models of inflation or unemployment). Drazen (2000) attributes this to a misapprehension of partisan cycles as
induced by monetary rather than fiscal policy, but it is also possible that partisan cycles in monetary policy work
through career incentives, and thus circumvent legal guarantees of central bank autonomy.


difference in policies, in units of m, or


F (F , RF )


To see this, it suffices to note that if F always reached and fulfilled bargains to pay m, it would
break-even versus the no-bargain solution in every period, and a bargain of  > 0 less in each
period would ensure F gains from trade in every period. (Given F < 1, F would be willing to
promise m/F , but not willing to pay it, hence m is best deal the central banker will accept.)
The lower bound is more complicated, since winning bargains must beat all alternatives
facing CBi :

i G (G , F )
(1 + i )i (i , F )
i (G , F )
, max 0,
m = max
i i
G i
i i
The first term is simply the utility CB i loses from setting Fs preferred policy; clearly any
acceptable bargain must fully compensate this loss. Winning bargains must also be better than
Gs best offer. The net change in CBi s utility given Gs best offer is captured in the second term
in Equation 14, which consists of the value to CB i of r and the governments preferred policy,
Successful bargains between F and CB i depend on the existence of gains to trade; i.e., m > m.
But unlike most games between short- and long-run players, bargains can succeed even when the
principal cares very little for the future. This is because payment of m
for todays policy is
deferred to the next period. If it is not paid, the next periods central banker (whether the
current agent or a replacement) will not accept an offer from F. Since the costs and benefits of
defection are deferred to the next period, any F (0, 1] suffices, so long as there are gains to
trade in the next period as well.
Since CBi always maximizes his return over one play of the stage game, he always employs
a pure strategy of accepting the best offer made, setting policy accordingly. F and G, however,
may choose to play either pure or mixed strategies. When both principals play pure strategies,
they offer some m
[m, m] and r [r, r]. CB i always accepts the best offer and implements
policy accordingly. In period 2, the winning bidder (if any) will make good on its promise, and
CBi will accept. If there was no winning bidder then CB i will remain as central banker, and
implement his own ideal i .
The arrangement of the game allows F or G to play mixed strategies, but they will not do
so in any way that affects policy or career transitions. Suppose, given m > m, F offers to pay m

in Period 2 such that m [m, m] with probability q, and m = 0 with probability 1 q. This will
be the winning offer so long as F respects the constraint that E(m)
= qm m. If the central
banker expects any less from F, then he will (rationally) punish F by refusing Fs bargain, but so
long as CBi expects at least m, he will implement Fs desired policy. Hence any mixed strategy
with qm < m is strictly dominated by the pure strategy of paying m = m every round, since the
latter assures F of unbroken policy influence, which is worth at least m per period. But failing
to pay m m in any particular round of the game leaves CB i in place for a second period, in
which he implements i regardless. Since we have shown that F would rather pay at least m than


reach this outcome, we can conclude that under a mixed strategy, no realization of m will fall
below this threshold. (If we relax the assumption that central bankers receive job offers before
choosing to leave the central bank in period 2, mixed strategies that occassionally pay nothing
become viable, but the policy implications of the model remain the same.) In sum, mixed and
pure strategy equilibria with the same E(m) and E(r) may differ with respect to job offer quality
and perhaps the likelihood of CBi receiving a job at all, but not with respect to any policies
actually implemented.


Appendix B: Data Appendix

Sources of data
Central bankers experience data were coded by the author and tabulated into experience scores
and other quantities using Escore. This software is/will be available from the authors website.
I benefited greatly from the assistance of central banks themselves in gathering information
on past and present central bankers. I gratefully acknowledge the assistance of the Banca dItalia,
Banco de Espa
na, Banco de Portugal, Bank of Canada, the Bank of England, Banque de France,
Banque Nationale de Belgique, the Central Bank of Ireland, Danmarks Nationalbank, Deutsche
Bundesbank, De Nederlandsche Bank, Norges Bank, Oesterreichische Nationalbank, the Reserve
Bank of Australia, the Reserve Bank of New Zealand, Suomen Pankki, Sveriges Riksbank, and the
Swiss National Bank. (Naturally, none of these institutions is responsible for any of the content
of this paper.) In many cases, the information possessed by the central banks was incomplete,
though a simple list of names was often an invaluable starting point. I then turned to a variety of
print, electronic, and web resources to fill in the details of central bankers careers. The printed
sources are listed in the references.
Central bank independence data were taken from Cukierman, Webb, and Neyapti (1992),
whose dataset ranges over 19501989. These data were supplemented using Maxfields (1997)
coding of the same countries through 1994. Additional CBI indices taken from Grilli, Masciandaro
and Tabellini (1991) and Bade and Parkin (1982).
Inflation, GDP, imports, and exchange rate data were obtained from the IMF International
Financial Statistics on CD-ROM (Spring 2003 edition).
The left and right leanings of governments were coded based on the scheme of Alesina and
Roubini with Cohen (1997), extended and supplemented with exact election dates by the author,
using the Europe World Yearbook (various years).

Descriptive statistics



Std. Dev.



Table 3: Summary statistics for data used in Table 1 regressions Data cover all twenty countries
over 19731997, and non-ECB members from 19732000. Cases of deflation are omitted.














Table 4: Correlations across career types and institutions

Section 3.3 Probit Regressions




Table 5: Post central bank appointments as a function of pre-central bank careers. Data drawn
from twenty countries over the period 19502000. The unit of analysis is each appointment to
the monetary policy authority, indexed i; t refers to the time the appointment ends. Entries are
probit parameters and standard errors. See text and Figure 2 for interpretation.

Robustness of Section 3.4 Inflation Regressions

To test the robustness of the inflation findings, I re-estimated the model using a variety of
alternative specifications, a robust estimator, and varied rules for aggregating across members of
a central bank. Though they vary in precision, the results almost uniformly support the substance
of Section 3.4.
Figure 9 provides a concise summary of alternative specifications. The first row reiterates
the findings presented in the text: after five years, inflation falls considerably if FinExp, FMExp,
or CBCC are raised, and it rises following appointment of central bankers with higher GovExp






Add world
Add %Left-Apptees
Use Cukierman CBI
Omit Imports/GDP
Robust Estimation

Change in inflation, five years after +1 s.d. in . . .

Figure 9: The career-inflation link under alternative specifications. Each plot shows the five-year
first difference in inflation resulting from a one standard deviation in a career variable (FinExp,
GovExp, etc.), given the specification noted at left. See text for a description of the baseline
model and alternatives. Circles and squares indicate point estimates of the first difference, and
horizontal lines 90 percent confidence intervals. The results marked with a square are the same
as those used in Figure 3. The shaded areas highlight the range of point estimates across all

or CBExp. These findings reflect a baseline least squares model that controls for CBI (using an
average of three indices), imports as a fraction of GDP, and two lags of the dependent variable.
The succeeding five rows show that these results hold up to changes in this specification. It makes
little difference if we add controls for contemporaneous inflation levels in the (other) G7 countries
or for the fraction of central bankers appointed by a left-wing government. Likewise, we could
substitute Cukiermans CBI index for the three index average, drop imports from the model,
or re-estimate the baseline model using robust estimation (see note 22), and in every case, the
effects of careers would remain correctly signed, and in the large majority of cases, statistically
significant. And no matter the specification, the combined career index, CBCC, remains strongly
and significantly associated with lower inflation. (The only added control that has a non-zero
effect is world inflation, which is positively related to domestic inflation).
A similar pattern emerges if we keep the baseline model and vary the construction of the
key explanatory variables. Most central banks have multiple, legally established monetary policy
makers, but only one policy outcome. Aggregating across these policymakers is a key challenge.
Taking the (tenure-weighted) means of all de jure policymakers seems like a good first approximation, though the median member is a better bet when a single dimension (like CBCC) is
established. But as Figure 10 shows, it makes little difference if we take means or medians of
the career components or CBCC. In constructing the CBCC index we have still more options.
Rather than weighting FinExp, GovExp, FMExp, and CBExp equally, as in the main text, we
could give only half-weight to the more ambiguous categories (FMExp and CBExp), or we could
use the point estimates of the coefficients on each category as its weight. The middle rows of
Figure 10 show that these alternative make little difference in the aggregate.








Estimated weights
Governors only
Gov only subsample

Change in inflation, five years after +1 s.d. in . . .

Figure 10: The career-inflation link under alternative aggregation rules. These plots can be
interpreted as Figure 9, save that the rows vary the rule for aggregating across central bank

A final approach follows the common practice of ignoring all central bankers but the governor
of the bank. Focusing on governors is an ironic practice, likely adopted for convenience only, since
its proponents often insist on the importance of legal institutions while ignoring the group of officials to whom those laws grant discretion. The procedure eliminates the problem of aggregation
by pretending it does not exist, and is, at best, a half step towards recognizing the importance of
central bank officials in setting monetary policy. Re-running the model using data on only governors produces correct signs in four of five cases, but none of the results are significant, and the
fit of the model is inferior to any other considered here. A final refinement restricts the sample
of countries to those where the governor has sole legal authority. This discards three-quarters of
the data, but produces correct signs in all five cases, and an almost significant effect of CBCC.
The intuitive conclusion to be drawn is that those officials who are legally deemed to matter are
the right ones to study, and restricting attention to governors, though expedient, is unjustified.


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