The life experience of central bankers and monetary policy decisions: a cross-country dataset
Summary
Focus
Central bankers decide monetary policy based on a mix of observable inputs and judgment. Professional knowledge and experience of major macroeconomic events can be fundamental in guiding their monetary policy decisions. For instance, some central bankers may have lived through periods of high inflation or faced economic crises, which can influence their perspectives on the best policy actions.
Contribution
To measure the role of life experience in central banking decisions, I built a hand-collected data set with gender, birth date, education and career background of central bank Governors, Deputy Governors and board members across more than 200 countries. This allows me to build experience-based forecasts for different central bankers, using the inflation rates observed since they reached adulthood. I then show that experience-based forecasts of future inflation affect the monetary policy Taylor rule of different countries, even after accounting for other macroeconomic data.
Findings
Demographic characteristics of central bank leaders have changed over time. For example, the fraction of women and the fraction of PhD graduates in central banking leadership have generally increased across all continents since the early 1980s. In addition, around 13% of the central bank leaders had mandates in Treasury before their central bank roles, and almost 9% will assume Treasury mandates after leaving the central bank. The fraction of central bankers with connections to Treasury is similar across all continents (except Oceania) and has remained stable in the last 30 years.
Furthermore, I show that experience-based forecasts of inflation influence the monetary policy rate, even after accounting for previous inflation and GDP growth. This finding is robust to: (i) using either quarterly or yearly frequency data; (ii) using experience-based forecasts from all central bank committee members or just the chairs; and (iii) adding interactions for central bankers' education, central bank autonomy and previous mandates in Treasury. Personal experience forecasts have a significant role in monetary policy across several countries, but with a much lower weight in advanced economies. Previous roles in Treasury and work or education experiences abroad are associated with higher weights for past observed inflation and lower weights of experience-based forecasts. Greater central bank autonomy is associated with a higher weight for the observed inflation rate, perhaps due to a smaller discretionary component in decision-making. Finally, I show that life experience may also influence other aspects of central banking, such as the attention given to inflation, financial stability and climate change in speeches.
Abstract
Using hand-collected data with biographical information on central bank governors and board members in over 200 countries, I obtain experience-based forecasts for GDP growth and inflation based on an adaptive learning model estimated from their lifetime macroeconomic data. I show life experience influences the monetary policy rates, even after accounting for other macroeconomics observables in the empirical Taylor rule. The role of personal experience is lower in advanced economies and for central bankers with treasury experience. Furthermore, life experience influences the tone of speeches for monetary policy, financial stability and climate concerns. Weather disasters experience reduces climate concerns and NGFS membership.
JEL classification: D83, D84, E37, E50, E60, E70
Keywords: monetary policy, fiscal policy, experience effects, forecasting, learning, beliefs
