Median voter preferences, central bank independence and conservatism

Abstract

This paper studies how the independence and theconservatism of a central bank relate to the structureand stability of the median voter preferences. This isdone by means of a model of endogenous delegationwhere an opportunistic policy maker chooses themonetary regime (independence and conservatism) tomaximise the welfare of the median voter. The resultsshow that a high degree of inflation aversion ofmonetary policy is not necessarily associated with ahigh degree of central bank independence. A high andstable degree of inflation aversion of society (i.e.of the median voter) may lead to establish a dependentcentral bank which is highly inflation averse. This suggests that the negativecorrelation between inflation and central bankindependence indices detected by several empiricalstudies may reflect a link between inflation and somedeep features of social preferences.