Ana Carolina Garriga

Thesis Title: Determinants of central bank independence in presidential systems: A two-level theory

Advisors: Barry Ames (co-chair)
David Bearce (co-chair)
George Krause
Mark Hallerberg

About

In my dissertation, I present a theory of the interplay between domestic and international incentives for central bank independence (CBI) and central bank reform. First, I explain under what conditions international determinants of CBI take precedence over domestic determinants. I argue that foreign investors and lenders demand CBI in developing countries as a signal of commitment to sound economic policy. As the need for capital increases, so do the incentives for countries to comply with foreign demands for CBI. However, the capacity of a government to respond to international incentives through CBI is conditioned by the domestic institutional context. The second level of my theory explains what factors affect a country’s elasticity to international demands for CBI. After explaining why the institutional hurdles imposed by presidential and parliamentary systems are of a nature that is not fully captured by the logic of veto points, I focus on presidential systems. Based on formal models of delegation, I argue that two factors condition governments’ responses to international incentives for central bank reform: the capacity of the president and of the congress in the inter-institutional bargaining, and the distance between the president’s and congress’ preferences. Therefore, I focus on three variables to explain central bank reform in presidential systems: (1) the extent of the president powers; (2) the quality of the legislature, both indications of the institutional actor’s capacity; and (3) the presence of divided government, as an indication of the preference distance between the executive and the legislative powers.

To test my theory I have gathered data on central bank reform and CBI in all countries with central banks, from 1970 to 2008. I have built a dataset on the professionalization of Latin American legislatures and committee systems covering the same period, and I have conducted fieldwork in Argentina, Brazil and Uruguay. I present three kinds of evidence to support my theory. In Chapter 4, I use a global sample to analyze the impact of growth, FDI loss and debt on the likelihood of reforming central banks. I show the distinctive behavior of developing presidential countries, which justifies the study of Latin American countries as a subsample. In the following chapter, I offer a quantitative test of the domestic argument on sample of all Latin American countries, between 1970 and 2008. In Chapter 5, I show the cross-country and within-country impact of the strength of presidential powers, the professionalization of the legislatures, and the presence of divided government. Finally, I present qualitative evidence collected in my fieldwork in Argentina, Brazil and Uruguay (Chapter 6).

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