Rethinking Credible Commitment: Economic Ideas and Central Banking

The global economic crisis has tested to the limits established policy paradigms. This critical juncture has motivated scholarly attempts to study patterns of continuity and change in the institutional frameworks of fiscal and monetary policy. This project contributes to this emerging literature by looking at the ideational political economy of central banks. The overarching aim is to shed new light on how economic ideas shape policy and institutional change in the area of central banking. The analytical focus is placed on the credibility story underpinning the politics of central bank independence (CBI). Specifically, the idea is to understand the way central bankers construct, interpret and negotiate the following mechanisms: the meaning of the ‘rules of the game’, the balance between commitment and flexibility, and the tension between macroeconomic discipline and political fundamentals. This research is divided into three main sections. The first section revisits theoretical debates about credible commitment and monetary institutions. The second shows how credibility narratives played out in the diffusion of CBI. The third section examines whether the ideational sources of monetary governance have been actually recalibrated during the Great Recession. This effort will include a systematic comparison of three leading central banks: the Bank of England, the US Federal Reserve, and the European Central Bank. The narratives on how central bankers have accommodated economic and political pressures will be informed by the political economy of ideas (Beland and Cox, 2011), including the scholarship on the rise and evolution of policy paradigms (Hall, 1993; Blyth 2012). This research will also engage debates about the resilience of neo-liberal ideas in the face of huge economic dislocations (Schmidt and Thatcher; 2013). To leverage the empirical analysis, the study will draw from recent advances in case study methodology and ideational process tracing (Gerring 2007; Goertz and Mahoney, 2012; Jacobs, 2015).