A model of appointing governors to the Central Bank

Abstract

In this paper, a formal model has been developed to analyze the appointment of individuals to serve as central bank governors in a two-party political system when confinnation hearings exist and monetary policy is determined according to a majority-rule voting system. lile major results of the paper are that appointed governors will tend to be more moderate (i) if the nominating party and the confirming party do not coincide, (H) the lower the chance the nominating party and the confrrming party coincide in the future, (in) if the term governors must serve out overlaps an electian, (iv) as the next election approaches, and (v) the lower the probability the nominating party wins the next election. Some of these theoretical results are consistent with existing empírical evidence related to tbe Board of Governors of the Federal Reserve System.