Populism and Central Bank Independence: A Conceptual and Empirical Reassessment

This paper builds on a small, but growing literature in political economy that has considered the relationship between populism and central bank independence (CBI). Much of this literature considers the logic and normative implications of populist attacks on CBI. Recent empirical tests; however, seem to founder on conceptual confusion regarding populism. Some equate populism with nationalism, though not all populists are nationalists. Others assume anyone who prefers short-term protections for the workforce without considering long-term economic distortions is a populist, risking conflating populism with all democratically elected governments. Many papers also struggle with appropriate measures of CBI, since the dominant de jure measures are nearly time-invariant within countries. This paper seeks to rectify these conceptual and operational issues to assess the relationship between populism and CBI more accurately. Conceptually, this paper adopts the ideational “thin-centred ideology” approach to populism, which is more common across the social sciences, and allows us to consider other “thick” companion ideologies like nationalism. Empirically, the paper draws on populist executives measured in this way, as well as a more dynamic de jure measure of CBI, and a de facto measure of central bank governor turnover that may more appropriately capture variation in CBI. These conceptual and empirical innovations allow for a reassessment of current arguments and evidence that populists seek to undermine CBI when in office. The results suggest that populism in its contemporary form is not a direct threat to CBI, though there is some evidence that populism driven by leftist ideology may reduce the legal independence of the central bank.