Allies or commitment devices? A model of appointments to the Federal Reserve

Abstract

We present a model of executive‐legislative bargaining over appointments to independent central banks in the face of an uncertain economy with strategic economic actors. The model highlights the contrast between two idealized views of Federal Reserve appointments. In one view, politicians prefer to appoint conservatively biased central bankers to overcome credible commitment problems that arise in monetary policy. In the other, politicians prefer to appoint allies, and appointments are well described by the spatial model used to describe appointments to other agencies. Both ideals are limiting cases of our model, which depend on the level of economic uncertainty. When economic uncertainty is extremely low, politicians prefer very conservative appointments. When economic uncertainty increases, politicians’ prefer central bank appointees closer to their own ideal points. In the typical case, the results are somewhere in between: equilibrium appointments move in the direction of politician's preferences but with a moderate conservative bias.

The influence of government ideology on monetary policy: New cross‐country evidence based on dynamic heterogeneous panels

“…The evidence of Havrilesky (1988Havrilesky ( , 1995 suggests that the Fed was responsive to executive branch signals of monetary policy preferences. An alternative channel through which politicians may influence monetary policy is through the power of appointment (Chang, 2001;Chappell, Havrilesky, & McGregor, 1993;Havrilesky & Gildea, 1991;and Schnakenberg, Turner, & Uribe-McGuire, 2017). By appointing political allies in the Federal Reserve Board, the president may try to redirect monetary policy in line with his preferences.…”

Do bureaucratic appointees change their minds? Preference stability at the NLRB

“…2007; Schnakenberg, Turner, and Uribe-McGuire 2017). In the end, we have very little empirical evidence about the degree to which or the conditions under which confirmed appointees match their appointing coalition and even less evidence about whether appointee preferences remain stable and therefore faithful to conditions that led to their selection.…”

“…On the one hand, it has been clear for decades that, consistent with the administrative presidency thesis, presidents have been seeking to entrench like‐minded appointees and thus hardwire the agencies for their preferred policy implementation (Hollibaugh and Rothenberg 2018; Nathan 1983). On the other hand, our formal models of the appointment process suggest that presidents will seldom be the only important voice in an appointing coalition (Hammond and Knott 1996; Nokken and Sala 2000), and presidents may not even prefer strict ideological clones of themselves (Bertelli and Feldman 2007; Schnakenberg, Turner, and Uribe‐McGuire 2017). In the end, we have very little empirical evidence about the degree to which or the conditions under which confirmed appointees match their appointing coalition and even less evidence about whether appointee preferences remain stable and therefore faithful to conditions that led to their selection.…”

Government Ideology, Monetary Policy, Fiscal Policy, and Financial Crises

“…The authorities of an independent central bank may want to deflect legislative threats to its independence by accommodating governmental demands (Havrilesky, 1995). Additionally, politicians may influence monetary policy through the power of appointment (Havrilesky and Gildea, 1991;Chappell et al, 1993;Chang, 2001;and Schnakenberg et al, 2017). Empirical evidence, however, has not been totally aligned with these ideas.…”

“…The evidence of Havrilesky (1988Havrilesky ( , 1995 suggests that the Fed was responsive to executive branch signals of monetary policy preferences. An alternative channel through which politicians may influence monetary policy is through the power of appointment (Havrilesky and Gildea, 1992;Chappell et al, 1993;Chang, 2001;and Schnakenberg et al, 2017). By appointing political allies in the Federal Reserve Board, the president may try to redirect monetary policy in line with their preferences.…”