How to improve the continuity of central bank governors after natural disasters

Abstract

Central banks have increasingly integrated sustainability objectives into their mandates, opening the influence of environmental risks in the appointment of central banks' officials. This paper presents the significance of natural disasters on the probability of a central bank governor's removal from office. The panel data from 99 countries from 1970 to 2018 using the semiparametric Cox proportional-hazards model (CPHM) was used. Our empirical results show that natural disasters raise the possibility that a central bank governor is replaced. The magnitudes of these impacts are heterogeneous across natural-disaster types and are robust when economic and political factors are controlled and different model specifications are used. The adverse effects of natural calamities become pronounced when central banks do not adopt inflation targeting, have low financial stabilities, and do not set sustainability objectives. Our findings suggest important policy implications for the political appointments.