Independence, conservatism, and beyond: monetary policy, central bank governance and central banker preferences (1981–2021)

The aim of the paper is to offer a theoretical setting to shed light on how two factors – central bank design and central banker preferences – assumed progressively a crucial role in the evolution of monetary policy economics in the last four decades. After the seminal contributes of Sargent and Wallace (1981) and Barro and Gordon (1983) on central bank independence (CBI), and Rogoff (1985) on central banker conservatism (CBC), Eijffinger and Hoeberichts (1988) distinguished the two concepts and their relevance in shaping the monetary policy choices. Since then, CBI and CBC became the founding pillars of a growing strand of literature, where it has been recognized that on the one side the central bankers’ preferences, as well as their drivers, can be heterogeneous, while on the other side the analysis must be more granular, given that monetary policy decisions are made by committees. Moreover, it is shown how in this literature the political economy methodology has been enriched using insights from behavioural economics.