April 17, 2020
I NDEPENDENT A GENCIES
–
M ORE THAN A C HEAP C OPY OF I NDEPENDENT C ENTRAL
B ANKS ?
P APER PREPARED FOR THE CONFERENCE
“S
EPARATION OF
P
OWERS
: N
EW
D
OCTRINAL
P
ERSPECTIVES AND
E
MPIRICAL
F
INDINGS
”
University of Haifa, Israel
December 19 – 21, 2007
This version: December 3, 2007
Marc Quintyn 1
IMF Institute
I. I
NTRODUCTION
An inherent part of the spread of the “regulatory state” model—where regulation is the dominant mode of governance—in (at least) the industrialized world, is the trend towards
“agencification” (Christensen and Lægreid (2006) and Jordana and Levi-Faur (2004)). While delegating specific policy or monitoring responsibilities to agencies is not new (Majone
(1993) and (1999), Pollitt and Talbot (2004), and Pollitt et al. (2004)), the rise of independent regulatory agencies (IRA) is a rather new phenomenon.
Such agencies, operating at arm’s length from the government have been spreading since the early 1990s and they are increasingly populating the field of economic regulation
(competition, financial regulation, telecommunication and utilities—see Thatcher (2002)).
Studies that have been analyzing the degree of independence from government of this new breed of agencies are discovering that there is certainly not “one model that fits all.” Degrees of independence vary across sectors and countries.
2 These differences certainly reflect
1 The views expressed in this paper are those of the author and do not necessarily represent those of the IMF or
IMF policy.
2 See Jacobzone (2005) and Giraldi (2002) and (2005a) for cross-country and cross-sectoral comparisons and
Quintyn, Ramirez and Taylor (2007) for a specific analysis of financial sector regulators.

2 constitutional, legal and political difference among countries, but they certainly also reflect uneasiness on the part of the political class with this new territory. How independent should these institutions be made? How far can governments go in delegating fields of policy making to independent agencies? Are there circumstances under which this agencification trend would start to erode the legitimacy of the government itself as a policymaker?
Attempts to formulate answers to these and related questions frequently turn to the recent history of central bank independence. In large parts of the world, central banks have become the exponent of the independent government agencies. Their independence is sometimes seen as a religion, or at least as a mystical power. So, this paper also starts from the question: is the central bank independence model (CBI) suitable to be copied to the emerging breed of
IRAs, or, what lessons can we learn from the CBI experience for the positioning of the new
IRAs within the government landscape, taking into account the need for checks and balances?
The answer will be nuanced. More specifically, we will point out that in the CBI literature, too much emphasis has been put on the “I” which entails a number of risks for the medium run, in terms of effectiveness of the model itself. In order to establish the right checks and balances for the IRAs—and to provide them with legitimacy—it is important that more attention be paid to the governance arrangements of these agencies (including central banks), than to the independence arrangements alone. In other words, more attention should go to the
“G” than to the “I.” Independence should be seen as only one pillar of the agencies’ governance arrangements.
The arguments are built up and illustrated as follows: section II puts the CBI model in its proper perspective and draws a number of lessons from it. Section III builds on these lessons and proposes a governance model for IRAs that ensures the necessary checks and balances.
Section IV illustrates how the political class is currently trying to come to grips with these principles. The section reports on recent findings with respect to financial sector supervisory agencies, a set of agencies that is currently worldwide under reform. Section V concludes.
II. I
NDEPENDENT
C
ENTRAL
B
ANKS AS THE
M
ODEL
?
A N
UANCED
V
IEW
One of the major institutional developments of the late 1980s and 1990s has been the rise of the independent central bank in large parts of the world. While Wood’s analysis, based on the U.K. and the U.S. history (Wood, 2007), points out that episodes of CBI are not new, the current period has a number of specific features. The rise of CBI is the culmination of an episode that started after the Second World War, wherein monetary policy was transformed from a mainly passive policy tool into an active stabilization policy tool. In that context, the search for the appropriate institutional model (the position of the central bank within government) went hand in hand with the search for the appropriate monetary policy model, and CBI turned out to be one of the more suitable models (Siklos, 2002).

3
Faced with rising and volatile inflation in the 1970s and 1980s, a major impetus for CBI in industrialized countries certainly came from the German model. Several sources point out that the episode of hyperinflation in the 1920s helped in categorizing inflation as a sin in the eyes of the German population (Shiller, 1997), and in response, that the pursuit of price stability became a “secular religion” (Tognato (2004)). The success of the Bundesbank in its fight against inflation elevated the pursuit of price stability by an independent central bank even more to a secular religion (Berger (1997) and Tognato (2004); see also Buiter (2007).
The fact that the spread of the CBI model went hand in hand with a deceleration in inflation in many countries, has greatly strengthened the believe in CBI as a desirable institutional arrangement to achieve price stability, and has given CBI a great reputation as a tool to address time inconsistency problems in policy and foster policy credibility. In some circles,
CBI almost acquired a mystical status.
However, while CBI continues to demonstrate a great deal of advantages, the foundations of the CBI-inflation theory have been attacked from various sides. While the last word has not yet been spoken, the assessment presented here concludes that CBI—with all the emphasis on “I”—as the one and only cure for a number of policy ills, needs to be demystified. The lessons that we will draw from this will subsequently be applied (and extended) to the field of independent agencies, in order to assist in better defining their place in the politico-socioeconomic landscape.
The theoretical underpinnings
Theoretical support for CBI as a superior institutional arrangement for achieving price stability is typically credited to the time-inconsistency literature. This literature is often referred to as the so-called KPBGR inflation bias story, where KPBGR stands for Kydland and Prescott (1977), Barro and Gordon (1983) and Rogoff (1985). The time inconsistency motivation in policy has since then found broad following in the debate on delegating policy responsibilities to (independent) agencies (see for instance Alesina and Tabellini (2004)).
It must be noted however, that these theoretical models have not be able to produce general, univocal results regarding the supremacy of a structure with an independent central bank compared to some alternatives (Bibow (2004). The questioning of the theoretical underpinnings was started in earnest by McCallum (1995) who pointed out that policy delegation to an independent central bank was not really a solution to the time-inconsistency problem, but merely a relocation of the problem.
3 It has been argued that McCallum’s argument only has validity as long as the cost of withdrawing the grant of independence is
3 To be sure, McCallum was not the first one to question the foundations of the CBI-inflation theory, but he was the first one to revisit the time-inconsistency argument for CBI.

4 low. 4 As soon as the cost for the government is high, CBI has its merits as an anti-inflation policy institution.
However, McCallum’s critique indeed points to another important question to which we will come soon: why do governments prefer to delegate to an independent institution if they can address the time inconsistency problem in policy on their own? This questions points to the endogeneity of CBI, the issue to which we will turn soon.
The empirical verification: CBI has (some) impact on inflation
In parallel with the previous debate, scholars went on to verify empirically the theoretical conjectures that underpinned CBI. After constructing indices of CBI
5
, these indices were used to determine whether the degree of central bank legal (and subsequently also actual) independence could be considered an independent variable in explaining important macroeconomic phenomena such as inflation, public debt and interest rates, income and growth.
6
Most studies confirm the existence of a negative and significant relation between
CBI and inflation in OECD countries. However, (i) doubts remain with respect to the causality—a point to which we will return; (ii) several of the results are sensitive to the CBI indicators used and the estimation period chosen; (iii) similar evidence could not be consistently found outside the OECD area; and (iv) a significant relation between CBI and other macroeconomic variables could also not be established. So the proposition that pursuing price stability provides a free lunch, in that it also brings growth at no cost could not be corroborated.
7
The next question: is CBI exogenous or endogenous?
While the above findings—there is a link between CBI and inflation—did their part in raising the status of CBI as a desirable institution, despite the caveats identified above, several authors in the areas of economics, law, and political science soon began to question the strength and causality of the relationship. Two intertwined questions started to dominate the scene. First, is the preference for price stability driven by other factors than CBI, such as the
4 See for instance Berger (1997) and Lohmann (1997)
5 The seminal CBI indices were published by Grilli, Masciandaro and Tabellini (1991)—revised in Masciandaro and Spinelli (1994)—and Cukierman (1992). The latter was also the first one to distinguish legal and actual indicators of independence. For an overview and discussion see Berger, de Haan and Eijffinger (2000).
6 See, among others, Grilli, Masciandaro and Tabellini (1991), Cukierman, Webb and Neyapti (1992), Alesina and Summers (1993), Cukiernan, Kalaitzidakis, Summers and Webb (1993), Alesina and Gatti (1995),
Cukierman and Webb (1995), Berger, de Haan and Eijffinger (2000),and Jacome and Vasquez (2005).
7 Several authors have indeed argued that establishing central bank credibility comes at a cost in terms of output growth (see Bibow (2004) and Buiter (2007).

5 economic, social and cultural background. Second, why, after years of relative immobility in central bank institutional settings, have politicians started to implement reforms that change the degree of CBI. Why and under which conditions would they delegate to an independent central bank? In other words, scholars started to look at the endogeneity of CBI and the CBIinflation connection.
8
As to the first question, two views have emerged. A number of studies conclude that some societies have more inflation-averse cultures than others which is reflected in their inflation records. More inflation-averse cultures are more inclined to adopt CBI than others as the inflation-fighting institution.
9 Other studies emphasize the presence of constituencies with a strong aversion to inflation which drive policymakers to bolster the status of the central bank.
10 Thus, CBI is more easily adopted and more effective in some settings than in others.
Bringing it all together, Franzese (1999) claims that the effectiveness of CBI depends on every variable in the broader political-economic environment.
11
As to the delegation-issue (the second question), several authors have pointed at a number of features of the legislative and/or political system which can influence policymakers’ decision to have a structure of monetary powers with an independent central bank and which make CBI effective as an inflation-fighting tool.
12
8 For a systematic and detailed review, see Hayo and Hefeker (2001).
9 See for instance Berger (1997), van Lelyveld (2000) and de Jong (2000). Hayo (1998) claims that people’s preferences with respect to price stability matter in explaining low inflation and that CBI is just one aspect of a stability regime, with two competing interpretations on the role of the institutional design: preference – instrument versus historical-feedback interpretation. In the same vein, Hayo and Voigt (2000) argue that a higher degree of de facto independence of the legal system from the other government branches, as well as public trust in the legal system may reduce the average inflation record of countries.
10 Posen (1995), noting that there are distributive consequences in the choices of monetary regimes, stated that there is no reason to assume that the adoption of CBI is self-enforcing; that choice requires political support, and the financial sector is positioned to provide that support. De Haan and Van’t Hag (1995) raised doubts about Posen’s theory. On the relationships between financial sector preferences, low inflation and CBI, see also van Lelyveld (2000). Miller (1998) provided an interest group theory of CBI.
11 Crowe (2006) demonstrates that CBI is more likely to occur in societies where preferences over different policy dimensions – one is the monetary policy dimension – are heterogeneous.
12 Moser (1999) analyzes the relationship between CBI and the features (checks and balances) of the legislative systems; Bananian and Luksetich (2001) demonstrate the connections between economic and political freedom and CBI attributes. Keefer and Stasavage (2001) introduce a theoretical model and empirical evidence on this issue. Bernhard (1998) claims that information asymmetries of the monetary policy process can create conflicts between government ministers, their backbench legislators and, in multiparty government, their coalition partners. An independent central bank can help overcome these conflicts. Goodman (1991) argues that conservative governments with expected short tenure will adopt an independent central bank to limit the ability of future government. Lohmann (1997) argued that the federalist nature of a government and the use of coalitions in forming government can increase the CBI likelihood. On the relationship between government
(continued)

6
Finally, a somewhat separate school of thoughts argues that governments can also be found in favor of CBI, if increasing the standing, credibility and reputation of the country in an effort to attract more foreign direct investment, is a policy priority. Maxfield (1997) and
Polillo and Guillén (2005) are exponents of this view, which applies mainly to emerging and developing countries.
What this wide range of sometimes competing, but more often complementary findings clearly indicates is that (i) the resort to CBI is easier sought in some institutional, cultural, political and economic settings than in others, implying that CBI effectiveness is higher in some than in others of these settings; and (ii) the desire for monetary stability has several roots, and CBI is generally and increasingly considered as a useful and necessary tool to achieve such stability. In other words, CBI is not “the rabbit that came out of the hat” to cure, in and by itself, inflation. Thus, the upshot of this literature has been to demystify the notion of independence. To be sure, it has not discredited CBI—far from that—because there is abundant proof, both quantitative and qualitative that CBI is and will remain a reputable institution in the pursuit of price stability.
13
Independence or Governance?
Another, more recent and certainly less crowded strand in the literature, stresses that the independence aspect has received too much attention to the detriment of other essential parts of central bank governance. Arguments in favor of more attention for central bank governance come from two different angles, but converge in further demystifying the importance given to the independence aspects, and pointing out the dangers of the
“independence-bias” in the literature.
The first angle emphasizes the risk for a “democratic deficit” inherent in the operation of an independent central bank. It is fair to state that in the initial stages of the CBI literature, accountability was treated a mere afterthought. Some authors mentioned the need for it, but not much attention was being paid.
14 Accountability was seen by many (not least by some of the central banks themselves) as a requirement that undermined independence—the “tradeoff” view between independence and accountability. partisanship and central bank structure see Alesina (1989) and Alesina and Sachs (1988). See also Bagheri and
Habibi (1998) on the relationship between CBI and political liberty and instability.
13 See Berger, de Haan and Eijffinger (2000), and Klomp and de Haan (2007) for an analysis of the empirical evidence.
14 See Amtenbrink (1999) for an overview of accountability arrangements in a number of central banks in
OECD countries.

7
A number of scholars (see for instance Fischer (1995) and Stiglitz (1998)) pointed at the
“democratic deficit” created by the above situation. The discussion was picked up by more scholars and practitioners in the run-up to the creation of the European Central Bank (ECB)
(e.g. Kenen (1995) and Briault (1996)) and has persisted in recent years (Bibow (2004),
Buiter (2007). Their message is that an institution as important as the central bank can and should not escape, or stand outside the process of democratic accountability. There should be means to hold the central bank accountable to those who bear the final responsibility for the government’s economic policies and who are accountable to the electorate.
Buiter (2007) argues that the democratic deficit is aggravated in two ways. First, most central banks have only formal, but no substantive accountability arrangements (in other words weak accountability). The lack of substantive accountability prevents a real dialogue between the central bank and other stakeholders, notably the government. Even more important is the tendency of several central banks to try to operate at times outside the scope of their narrow monetary policy mandate (Buiter (2007, p. 115)). Going outside the mandate makes the democratic deficit even greater, and what is more, it will “…create the risk of a political backlash that could endanger the operational independence of the central banks where it is helpful – in the single-minded pursuit of price stability.” (ibid).
The second argument in favor of a more balance governance model follows from more operational, but equally important, considerations. Seminal work in this area was done by
Siklos (2002). He links the developments in the institutional model for monetary policy (the move towards CBI) with developments in the monetary policy model itself and shows that independence needs to be complemented by other governance features to be effective. His interesting analysis of the Post World War Two history of central banking and monetary policy can be summarized as follows:
 after World War II, monetary policy was assigned a more active stabilization role.
This role became even more important in the wake of the break down of the fixed exchange rate system;
 high and volatile inflation in the 1970s and 1980s made the cry for an appropriate monetary policy framework and institutional setting louder;
 a central bank operating at arm’s length from the government seemed an attractive model (see above), and monetary targeting became the dominant model in the wake of the monetarists’ convincing arguments that inflation is a predominantly monetary phenomenon;
 however, this policy model was fraught with inherent weaknesses from the beginning: developments in monetary targets were not always easily understood by the public; their link with inflation was often opaque and/or unpredictable; moreover, these weaknesses in the model were fairly soon further compounded by the effects of

8 emerging financial innovations. These weaknesses in the model were further aggravated by the lack of accountability and transparency of most central banks. But, even if central banks had wanted to be more accountable, the above mentioned opaqueness of the targeting framework would have made the role of accountability and transparency very difficult;
 inflation targeting, pioneered by New Zealand and Canada, presented itself as a much more refined and more easily understood monetary policy model. The growing group of central banks that has adopted the framework fairly quickly understood that its success hinged upon communication with all stakeholders. So, accountability and in particular transparency were increasingly recognized as necessary governance arrangements.
15 Enhanced transparency also had an impact on internal governance arrangements: should decisions be taken by the governor (single person) or by a committee? How should these committees be composed? How do its members vote, and should that be published?
So the search for an effective and transparent monetary policy model to achieve price stability has forced central bankers to pay more attention to other aspects of central bank governance. Independence is now more accompanied by accountability, mainly through transparency, 16 and internal governance arrangements are receiving greater attention.
17
Gradually—but only gradually—the view that accountability and transparency are needed to make independence effective, is gaining support.
18
Two lessons from CBI for IRA
Two main lessons can be distilled from the history of CBI. First, independence in and by itself, is not the only solution in fighting inflation. It is an extremely useful institution but needs a social and political environment that is conducive to making CBI effective in achieving and preserving price stability. Secondly, independence, to be effective, needs to be part of balanced governance arrangements. Accountability, neglected for a long time, is an
15 The importance of communication and transparency is also underlined in Bibow (2004) who identified the
ECB’s “communication gap” as key to the Euro’s plunge in 1999-2001.
16 As pointed out earlier, Buiter (2007) claims in this regard that central bank accountability is still a weak form of accountability, as it runs mainly through transparency, and cannot be really seen as substantive accountability.
17 For reviews of internal governance arrangements, see Lybek and Morris (2004), Berger, Nitsch, and Lybek
(2006) and Frisell, Roszbach and Spagnolo (2007).
18 See Eijffinger et al. (1999) for a model that shows that independence and accountability are complementary in the case of monetary policy. Bibow (2004) also stresses the importance of balanced arrangements, as opposed to “maximizing” independence.

9 indispensable part of these arrangements. In other words, what counts is probably more CBG
(central bank governance) than CBI.
Theory and empirical evidence have gradually taken away the mystical (or mythical) part of independence and have put it in the right perspective: CBI is a necessary , but not sufficient condition for price stability. CBI is necessary because it has proven to be more suitable than any other institutional arrangement for monetary policy, in particular the dependent central bank. However, to make independence effective (i) a commitment from society is needed that inflation cannot be tolerated, (ii) it operates better in political and legal system with some specific features than in others, and (iii)it needs to be complemented by other governance arrangements.
So, is the independent central bank the forerunner, the model, or the exception? It is to some extent a forerunner, in the sense that talk about the regulatory state, regulatory governance and IRAs were not yet part of the mainstream literature when the first independent central banks emerged. In that regard, CBI is the model of policy delegation that increases policy efficiency and effectiveness. But the above analysis has also pointed out its limitations and the needed adjustments to enhance its effectiveness and durability as a model. In that regard, new IRAs should not be cheap copies of the CBI model, but should incorporate the lessons learned.
Finally, CBI is also unique in the sense that its goal, price stability, is a public good that is at the basis of the well-functioning of a society and that has repercussions for almost all aspects of live. This seems a difference with most other IRAs. The nature of the central bank’s mandate is different in that it belongs to the “high” politics of every country (the flag and the money as the two main exponents of a nation’s identity). The other IRAs mandates are more confined to specific, but important, areas of economic life. Among the other IRAs, financial sector supervisors come probably closest to the central bank position because their mandate is to contribute to financial stability, a public good closely intertwined with price stability.
III. IRA S : F ROM
“I”
TO
“G”
A. IRAs – central banks get followers
There is a growing consensus that the industrialized world has entered the era of the regulatory state.
19 The term was first coined by Majone (1994) and (1997) and is now being widely used to describe a state whose main goals are to improve the efficiency of the economy, promote competition, and protect consumers and citizens (Christensen and
19 See, among others, Minogue and Ledivina (2006) on the differences between the industrialized world and the developing world in this regard, as well as on the difficulties inherent in the policy transfer of the regulatory model.

10
Lægreid (2006). Other traditional important considerations (such as income redistribution) have not disappeared but are de-emphasized (Majone (1997), and the state refrains from intervening and participating directly in the economy.
The regulatory state tends to favor regulation over other means of policymaking. So regulatory governance has become the main mode of governance. One of the (new) features of this model is that the governance is not centralized but instead shared by a wide array of institutions including ministerial departments, the legislative and judicial branch, government agencies, independent agencies and self-regulatory bodies.
Agencification is an inherent product of the development of the regulatory state and its mode of governance (Christensen and Lægreid (2006) and Jordana and Levi-Faur (2004)).
Although the emergence of agencies within the government structure is not new (Pollitt and
Talbot (2004)), the current development is characterized by the emergence of a number of unprecedented features. The first is the acceleration at which they have been spreading (the
“unbundling of government”, Polllit et al. (2002)). A second new phenomenon is the proliferation of regulatory agencies in the economic sphere. Traditionally agencies were limited to regulating economic monopolies and to the social sphere. Now, regulatory agencies form the main mode of governance in competition, utilities and financial sector regulation (in addition to the central banks) (Ogus, 2002).
The third distinctive feature is the emergence of independent regulatory agencies (IRAs), i.e. agencies with regulatory powers that are neither directly elected by the people, nor directly managed by elected officials (Gilardi, (2005a)). For these features, they have been labeled nonmajoritarian institutions (Majone (1994) and (1997) and Thatcher (2002)).
Within the context of this paper we focus on the IRAs. IRAs are at one extreme of a continuum, ranging from agencies with maximum independence, over semi-autonomous, to non-autonomous agencies (for an overview and classification, see Pollitt et al. (2004) and
Vibert (2007)). The discussion as to why some agencies have been granted more independence than others, as well as to whether independence should be granted in the first place, falls outside the scope of this paper. This paper focuses on how IRAs can operate effectively within the constitutional, legal and political context.
A striking finding about the IRA literature is that it has been somewhat blinded by the CBI literature. The main focus of theoretical and empirical contributions is on the independence aspects.
20 A few contributions discuss accountability arrangements in depth (Scott (2000),
Gilardi (2005b), Lodge (2006)), and Majone (various publications)). As we have pointed out
20 For empirical work, see for instance Gilardi (2002), (2005a and b) and (2006). Gilardi (2007) extends the comparative analysis to include central banks. See later in this paper.

11 elsewhere (Hűpkes, Quintyn and Taylor (2005)), this bias in the literature (and practice) follows to some extent from the contrast between the ease with which the notion of independence is understood, the strength of the message behind it, and the conciseness with which it can be described in legal documents on the one hand, and the elusive nature of the notion of accountability and the detail needed to elaborate arrangements in legal texts, on the other hand.
B. Governance of Regulatory Agencies
The fact that IRAs, with central banks in the lead, have been accepted as an indispensable part of the functioning of the regulatory state, does not imply that governments are not struggling to fit these new institutions into their constitutional and political systems. Whether one wants to define them as a fourth branch of government or not, is in the end of lesser importance. The important issue is that checks and balances are in place so that these agencies do not act as “ an uncontrolled fourth branch of government” (Majone (1993)). As some references earlier in this paper show, putting too much emphasis on independence alone is bound to lead to problems. If the independent agency wields too much power, it may make the government nervous and at the first serious clash, the government may be tempted to withdraw or limit the grant of independence. In other words, too much (unchecked) independence may undermine the agency’s effectiveness and over time be counterproductive.
In this regard, the most important lesson stemming from the CBI literature is that CBG matters more than CBI for the effectiveness of the central bank. The new generation-IRAs are allowed to operate at arm’s length of the government for many of the same reasons as central banks.
21 Thus, the challenge is to endow them with the right governance attributes, in order to address the twin pitfalls revealed in the CBI literature: to address the democratic deficit and the risk of loss of policy effectiveness inherent in agencies whose independence is not balanced by other arrangements. One other reason for focusing on the “G”, instead of the
“I” stems from the finding that nowadays’ liberalized economic systems are largely governance-driven. Thus, good governance practiced by IRAs should have a demonstration effect on the regulated sector, and thus strengthen governance practices in those sectors. 22
Williamson (2000) pointed out that “ ...governance is an effort to craft order , thereby to mitigate conflict and realize neutral gains . So conceived a governance structure obviously reshapes incentives” (italics are ours). The aim of the model of governance arrangements elaborated in this section is exactly to (i) craft order, internally in the agency, and between
21 See Gilardi (2007) for an interesting empirical comparison of the motivations for delegating power to central banks and other regulatory agencies.
22 See Quintyn (2007) for an elaboration of this idea of a “governance nexus” in the economy, with application to the financial sector.

12 the agency and its stakeholders (for instance by identifying mechanisms to avoid capture— see below); (ii) mitigate conflict between the agency and its stakeholders; and (iii) assist in realizing gains for all stakeholders, i.e. to assure that the delegation of power to the IRA is a socially optimal solution.
Making Williamson’s definition operational, Das and Quintyn (2002) identified four essential pillars of good regulatory governance: 23 independence, accountability, transparency and integrity.
24 If well-designed, these four principles can underpin most of the key elements of internal and external governance arrangements for regulatory agencies. They lay down principles for dealing with shareholders (the government) and stakeholders (regulated and supervised entities, customers of the regulated entities, and the public at large) and for setting up internal governance arrangements in support of the external ones. They underpin mechanisms for attaining the agency’s stated objectives and for monitoring its performance.
Although references to these four principles are seldom explicitly made in the private sector governance literature, some parallels can be easily made: the need for an arm’s length relation between managers and shareholders in the private sector finds its parallel in the need for independence for the regulator from the share- and stakeholders (government and regulated industry, respectively). In this regard, Majone (2005) and Quintyn and Taylor
(2007) draw a parallel between the fiduciary relationship between private sector managers and shareholders on the one hand, and regulators and their stakeholders on the other hand.
IRAs have a fiduciary relationship with their stakeholders. To be effective, these fiduciary responsibilities need to be complemented with accountability arrangements between them and the stakeholders. Furthermore, transparency mechanisms are there to facilitate accountability, and integrity measures to avoid conflicts of interest. One point of difference—or emphasis—is that regulatory agencies, at varying degrees, have a greater number of stakeholders than private nonfinancial firms. Hence, in our view accountability needs to assume a greater role for government agencies than for private firms (see also below).
As can already be observed from the discussion above, a major feature of this foursome is that they reinforce each other. Weakening one of them tends to undermine the effectiveness of the others, and in the end, the quality of the agency’s governance. The next sections briefly highlight the main features of these four pillars.
23 Throughout this section, we will use the term regulatory governance in reference to the corporate governance arrangements for regulatory agencies. The term is used here in a narrower sense than elsewhere. The broader definition, as explained earlier refers to the emerging mode of governance of social and economic life in a large number of countries through regulation.
24 This approach is further elaborated in Quintyn (2007).

13
Independence
This is the pillar that is by far the most discussed one in the literature. This, in itself, has created a dangerous bias, as pointed out in the CBI literature. As a starting point for good governance, the regulatory agency should be insulated from improper influence from the political sphere (political capture) and the regulated entities (industry capture). A fair degree of independence from both sides will increase the possibility of making credible policy commitments and having stable regulatory frameworks.
Having said this, it should be stressed that agency independence can never be absolute.
25 In our political systems, these “unelected officials” are an integral part of the government system and need to share the government’s broad objectives and responsibilities. This important premise is further emphasized by the fact we identify independence as a pillar of regulatory governance, and not as an end in itself—an error that is quite often made.
The grant of independence by the government needs to be supported by elements of internal governance (composition of board(s), selection of board members, functions of boards, voting rights of board members, collegial nature of board decisions).
Accountability
Accountability is the indispensable, other side of independence. Yet it is a problematic one, because policymakers and agencies seem to have trouble getting a practical grasp of its workings. One of the problems is that many scholars tend to refer to narrow concepts of accountability, more or less equivalent to reporting. Based on more recently developed views on the topic, Hüpkes, Quintyn and Taylor (2005) and Quintyn and Taylor (2007) underline the virtuous interaction between independence and accountability, and present a set of practical accountability arrangements in the context of financial regulators. The authors argue that accountability can be thought of as fulfilling at least four functions: 26
 provide public oversight
, its classical role. The agency needs to “give account” of the way it pursues its mandate and objectives;
 maintain and enhance legitimacy . Only if the actions of a fiduciary have legitimacy in the eyes of the political principals, the regulated firms, and the broader public can it use the granted independence effectively. If the agency’s actions are perceived as
25 As Buiter (2006) illustrates, this point is not always underwritten (or understood) by central banks. See also
Oosterloo en de Haan (2004). In a response to their survey on central bank accountability, one central bank responded “We are independent and therefore not accountable.”
26 For a development of these functions, see among others, Bovens (2004) and Behn (2002).

14 lacking legitimacy, its independence will not be long lasting. Legitimacy can be generated through various accountability mechanisms and relations.
27 Accountability permits the agency to explain the pursuit of its mandate to a broader public. This is essential to build understanding of, and broad-based support for, the way it performs its duties, and hence provides a necessary precondition for strengthening its reputation. At the same time, accountability arrangements provide a public forum in which different stakeholder groups can make representations about agency policies.
By creating opportunities for transparent and structured public influence, the incentives for private influence are reduced. Once it has been accepted that accountability generates legitimacy, and legitimacy supports independence, it becomes clear that the relationship between accountability and independence does not imply a trade-off, but is one of complementarities; 28
 enhance the integrity of regulatory governance ; independent agencies face a third type of capture: self-interest capture.
29 This refers to a situation in which the powers of the regulatory agency are captured by individual staff pursuing their own selfinterest which may not be consistent with social welfare. Regulatory self-interest can take a variety of different forms including, in highly corrupt societies, the abuse of regulatory powers to extract rents that accrue directly to individual regulatory staff.
Less blatant, but potentially just as damaging, is the motivation of “not on my watch”, i.e. the desire of regulators to delay the emergence of problems until after they have left office. Self-interest capture provides another justification for accountability arrangements. Agency accountability provides society with assurances that regulation is not being manipulated or subverted by private interests; 30 and
 improve agency performance . Accountability is not only about monitoring, blaming, and punishment. It is also about enhancing the agency’s performance. If properly structured, accountability lays down rules for subjecting decisions and actions of the agency to review. Thus, by reducing the scope for ad hoc or discretionary
27 Legitimacy as used here is different from its use in the legal sphere, where it means “having a legal basis.”
While the latter is critically needed for any institution, there is another dimension to legitimacy which can be defined as the popular acceptance of a governing regime, law or institution as an authority. This is the meaning referrred to in this context.
28 The concept of a ‘trade-off’ is flawed to the extent that it assumes that stronger accountability mechanisms must necessarily mean a less independent regulatory agency. The point made here is that accountability renders independence effective. See also Majone (1997, 1999 and 2005), and Zilioli (2003).
29 “Self-interest capture” has been developed in the context of financial supervision. See Kane, 1990, with an application to the regulatory response to the S&L crisis in the United States, and Boot and Thakor, 1993.
30 As we will discuss later, accountability as an external governance mechanism must be supplemented by internal governance measures to enhance staff integrity in order to avoid self-interest capture.

15 interventions, the agency’s performance can be enhanced. In addition, by giving account to the government, the agency provides input to the government as to how to
(re)shape its broader economic and financial policies. The agency has a domain of expertise that it should share with the government. In this sense, accountability stimulates coordination with the government and enhances the agency’s legitimacy, without encroaching on its independence.
Finally, the line between accountability and control remains very thin—leading to another set of misunderstandings about the arrangements. Following Moe (1987) the purpose of designing accountability arrangements is to put in place a combination of monitoring arrangements and instruments, so as to arrive at a situation where no one controls the agency directly, but the agency is nonetheless ‘under control,’ i.e. it can be monitored—not just by the government, but by other stakeholders as well—to see if it fulfills its fiduciary obligations.
Transparency
Transparency refers to an environment in which the agency’s objectives, frameworks, decisions and their rationale, data and other information, as well as terms of accountability are provided to the stakeholders in a comprehensive, accessible, and timely manner (IMF
2000).
Transparency has increasingly been recognized as a “good” in itself, but it also serves other purposes related to the other components of governance. As a “good” in itself, policy makers have been recognizing that it is a means of containing market uncertainty. In addition, transparency has become a powerful vehicle for countering poor operating practices and policies. Transparency has become a main conduit of accountability to a large number of stakeholders (Lastra and Shams, 2001).
Integrity
Integrity is often the forgotten pillar. Yet, it is an essential one as it provides several of the underpinnings for good internal governance in support of the external elements (Das and
Quintyn, 2002). Integrity refers to the set of mechanisms that ensure that staff of the agencies can pursue institutional goals without compromising them due to their own behavior, or selfinterest. Integrity affects staff of regulatory agencies at various levels. Procedures for appointment of heads, their terms of office, and criteria for removal should be such that the integrity of the board-level appointees (policy making body) is safeguarded. Second, the integrity of the agency’s day-to-day operations is ensured through internal audit arrangements, which ensure that the agency’s objectives are clearly set and observed, and accountability is maintained. Ensuring the quality of the agency’s operations will maintain the integrity of the institution and strengthen its credibility to the outside world. Third, integrity also implies that there are standards for the conduct of personal affairs of officials

16 and staff to prevent conflicts of interest. Fourth, assuring integrity also implies that the staff of the regulatory agency enjoys legal protection while discharging their official duties.
Without legal protection, objectivity of staff would be prone to contest—and staff to bribery or threat—and the overall effectiveness and credibility of the institution would suffer.
Mutual reinforcement
A key feature of these four pillars is that they hold each other in balance and reinforce each other as governance pillars (chart 1). The previous paragraphs have already illustrated this, and a few more examples reinforce the point. Independence and accountability are two sides of the same coin. Independence cannot be effective without proper accountability. Without proper accountability measures in place, agencies (or their heads) can lose their independence easily in disputes with the government. Transparency is a key instrument to make accountability work. It is also a vehicle for safeguarding independence. By making actions and decisions transparent, chances for interference are reduced. Transparency also helps to establish and safeguard integrity in the sense that published arrangements provide even better protection for agency staff (against themselves). Independence and integrity also reinforce each other. Legal protection of agency staff, as well as clear rules for appointment and removal of agency heads, support both their independence and integrity. Finally, accountability and integrity also reinforce each other. Because of accountability requirements, there are additional reasons for heads and staff to keep their integrity. Together they reduce the risk of self-interest capture.
31
In sum, these four underpinnings, taken together, create clarity in the relationship between the IRAs and the government (and other stakeholders)—something that is somewhat missing in the central bank-government relationship. With sufficient checks and balances in place, the agency will have assurances that it can operate independently to pursue its mandate, and the government will have assurances that the agency remains “in check”, i.e. that its operations remain aligned with the government’s broad policy objectives—another way of stating that there is no longer a democratic deficit. Referring the Williamson’s definition, all this is indeed about shaping and reshaping incentives on both sides.
Further elaborations
Some further elaborations are in order to illustrate the interaction among these four pillars in the context of IRAs. First, among these four pillars, independence and accountability are the
31 Recent examples illustrate the importance of these four pillars and of their mutual reinforcement. The firing of the governor of the Banca d’ Italia in 2006 and the subsequent revision of the central bank law was seen as a reaction against a governor who had maximum independence-cum-limited accoutability. The head of the
German financial supervisor (Bafin) came under strong pressure in 2006 because of loose practices in the agency that were the result of a lack of (respect for) integrity arrangements.

17 most difficult to establish since they are the outcome of a political process. Once an agency has been endowed with a defined degree of independence and with accountability arrangements, the agency itself is best placed to put transparency and integrity arrangements in place.
The degrees of independence and accountability should be commensurate. The clearest illustration of this principle is the case of goal independence versus instrument independence.
If an agency is given goal independence, accountability should be more elaborate because the agency has more opportunities to set objectives that are not in line with the government’s or society’s preferences. The issue becomes more critical, the broader the impact of the agency’s policies are. Central banks have, in that regard, the broadest impact on society.
Goodhart and Meade (2002) compare the US’ and UK’s supreme courts and central banks and show that constitutional and legal traditions have a decisive impact on whether these supreme institutions receive goal (US) or instrument (UK) independence and how checks and balances in both countries differ to ensure that the agencies remain “in check.”
Proportionality in accountability arrangements should also hold with respect to the degree of specificity of the agency’s mandate. The general tone of the literature on accountability is that the first step in accountability is the definition of a specific mandate or objective, so that
Chart 1 – The four pillars of regulatory governance the agency can be held accountable against this mandate. Inflation targeting central banks are typically used as the prototype example: they should be held accountable against the target

18 that was set for them by the government, or that they set for themselves (in case of goal independent central banks). Accountability arrangements should in those cases not be extremely complex, but need to be in place.
At the other extreme stands the financial supervisor. This agency’s mandate is much less measurable (such as to maintain a sound financial system, often in conjunction with other goals such as consumer protection, prevention of money laundering, etc.), and cannot be very specific because of all the contingencies involved in financial sector regulation and supervision. Some authors have argued (e.g. Goodhart (2001)) that such a vague mandate precludes proper accountability and, therefore, that these agencies should not be granted maximum independence from the government (Goodhart (2007)).
The argument developed by e.g. Majone (1999) and (2005), and Hűpkes, Quintyn and Taylor
(2005), on the contrary, is that these agencies should be able to operate at arm’s length from the government (and the industry) for the reasons discussed in the literature, but that accountability arrangements should be such that the agency remains “in check.” Given the wide range of contingencies in the financial regulation and the large number of stakeholders in financial regulation and supervision, a “360 degree”-type of accountability is required, with arrangements towards the three government branches, the supervised industry, the customers of financial services and the public at large. 32 In more general terms, the less specific the mandate, the more elaborate accountability arrangements should be.
A final point about the depth of accountability arrangements relates to the earlier finding that regulatory agencies have been mushrooming at varying distances from the government. They can be positioned along a continuum from maximum independence to no autonomy.
Obviously accountability arrangements should be proportionate to the degree of independence granted to the institution.
Given these assurances to the government, there should be no loss of credibility for the government resulting from delegating policy functions to IRAs. As long as these agencies operate under proper governance arrangements, they remain part of the government and should be recognized as such. The real limits to delegating government functions are not in the number, but in the nature of the activities delegated. In this regard there is a broad consensus that, from a social welfare point of view, redistributive policies should not be delegated to IRAs (see among others Majone (1999) and Alesina and Tabellini (2004)). 33
32 For the case of financial sector supervisors, Hűpkes, Quintyn and Taylor (2005), as well as Quintyn, Ramirez and Taylor (2007) propose a list of specific accountability arrangements towards all stakeholders. See also
Lodge (2006) for a similar list for IRAs more generally.
33 To be sure, nearly all policies have redistributive effects (e.g. monetary policy), but their goal is not redistribution. Accountability and transparency should make the effects visible. See also Stiglitz (1998) on this point.

19
IV. I
LLUSTRATION
: S
HAPING
R
EGULATORY GOVERNANCE FOR FINANCIAL
S
UPERVISORS
This last section, which is based on earlier research and on research in progress, illustrates a number of points made in the two previous sections, by referring to the current developments in shaping regulatory governance of financial supervisors. The points that we illustrate are (i) governments are drawing some lessons from the CBI experience in that they are looking for more balanced arrangements; (ii) nonetheless, cross country experience also shows that governments are struggling with the positioning of these institutions within the constitutional and political framework, i.e. no clear model has emerged; and (iii) in particular, the meaning and use of accountability seems to pose challenges for the policymakers.
Background
Attention for the proper position of financial supervisors within government is of a fairly recent date, i.e. the turn of the century.
34 So financial regulators are the latest ones in the list of economic regulators to be considered for IRA status. Moreover, financial regulators possess some unique features among the IRAs. They are close to the central banks in that they also contribute to financial stability. Yet, they differ from most IRAs (central banks, competition regulators and utilities regulators) in that (i) their mandate contains a great number of contingencies, (ii) their supervisory function is more developed than for most other IRAs; (iii) as a result of this, regulation and supervision are two distinct but equally important activities with different repercussions for governance; (iv) given the special role of the financial system in the economy, their transparency needs to be weighed against confidentiality more than in any of the other types of regulators; and (v) their judicial powers include “the coercive power of the state against private citizens” (Lastra and Wood (1999) which is more farreaching than for all other types of IRAs.
35
These features explain to a great extent why governments are reluctant to give (new) financial regulators the same degree of independence as the central banks, why they put more emphasis on accountability, and why approaches differ so much among countries. This reluctance in granting supervisors independence is also illustrated in Gilardi (2005a) who finds that in a set of 17 Western European countries, financial regulators are on average less formally independent from government than utilities regulators. 36
34 Quintyn and Taylor (2002) and Hűpkes, Quintyn and Taylor (2005) are two seminal papers on, respectively, independence and accountability arrangements for financial sector supervisors.
35 For an in-depth comparison between central banks and financial supervisors , see Hűpkes, Quintyn and
Taylor (2005).
36 In his grouping financial regulators also comprise competition authorities.

20
The first results presented here are based on Quintyn, Ramirez and Taylor (2007). That paper defined, on the basis of the papers mentioned in footnote [34], 22 criteria for supervisory independence and 19 for accountability, with the focus on bank supervisors. The analysis was limited to these two governance arrangements because, as indicated earlier, they need to be decided by the political class. Based on these criteria, the paper calculated an index of legal supervisory independence and accountability. The index was calculated for a set of 32 countries that in the past decade-and-a-half went through either a structural-cum-legal reform of supervision (new supervisory structure with concomitant changes in the legal framework), or a legal reform alone. The index was computed on the basis of the legal framework before and after the changes, which allowed us to gain insights in the political class’ views on independence and accountability for financial sector supervisors.
Financial sector supervisors do not form an homogeneous group of institutions, unlike central banks or other regulators. Before the current wave of reforms took off, supervisors could either be ministerial departments (Austria), agencies attached to ministries (many countries), a department within the central bank (many countries), an agency linked to the central bank
(France, Poland), or a separate, autonomous or semi-autonomous government agencies
(Belgium). As part of the reforms, the ministerial department and the agency attached to a ministry are disappearing agency types. A new type of agency has emerged, the multi-sector supervisor (supervising at least two subsectors of the financial system) (South Africa), or the unified supervisor (responsible for supervising the entire system) (United Kingdom). These new types of agencies can either be housed inside the central bank (Singapore), linked to the central bank (Ireland, Finland), or be outside the central bank (United Kingdom, Germany).
So the field remains heterogeneous, with, as we shall see, implications for the governance arrangements.
Chart 2 presents a scatter-plot of the Independence (I) – Accountability (A) interaction before and after reforms. From the chart we infer the following conclusions:

Governments are paying more attention to I and A than before. On average we find a move towards more I and A for financial supervisors. The upward trend is stronger for the accountability scores, which were on average low before the reforms started.
So more attention is now going to accountability arrangements;

No homogeneous governance model is (as yet) emerging. The observations are indeed scattered around the chart. In some countries I-scores are much higher than Ascores, while in others the A-score is way above the I-score. This could reveal individual country preferences, based on culture, past experiences, etc. What is more important is that it could also reveal a weak understanding of the interaction between
I and A as governance arrangements. Ideally, if it were generally accepted that A is complementary to I, most observations would be along the 45 degree line in the chart.
This is obviously not the case.

21
Another observation from this research, but not reported in that data here, is the confusion between control and accountability measures. Our research identified several countries where the law stipulates that the agency is independent, but where a minister is the chairperson of the agency’s policy board. Often this is interpreted as an accountability measure, whereas in reality it is a control measure that undermines independence.
Table 1 sheds a different light on the results. It regroups the scores according to the location of agency after the reforms (inside versus outside the central bank, with the new category of unified supervisors listed separately) and leads to a number of very interesting observations from the point of view of the topic of this paper (follow central bank model or not?).

Supervisors housed in central banks enjoy greater independence than their colleagues outside the central bank, both before and after reforms. So, even though independence is typically only granted for monetary policy objectives, supervisors piggy-back on the arrangements;

On the other hand, although all scores have improved, supervisors housed in central banks have weaker accountability arrangements than their colleagues outside the bank. Accountability arrangements in central banks are typically geared towards the monetary policy function and not towards the (more complex) supervisory function.

It is interesting to note that the unified supervisors, the really new breed among these agencies, have lower I than central banks and higher A scores, and that their I and A scores are more balanced. In other words, we are witnessing most clearly here real efforts on the part of the policymakers to reshape and balance the governance model for these supervisors, and (since several of them used to be in the central bank before reforms) in some cases a clear break with the central bank governance structure (i.e. they are not cheap copies).
Table 1.Accountability and Independence: Trends by Location of Institution
(Average rating)
Total Rating
Before
After
Independence
Before
After
Accountability
Before
After
Inside Central
Bank
46
64
58
73
36
56
Outside Central
Bank
46
64
51
66
41
62
Of Which Unified
Supervision
48
65
52
65
44
64

22
Table 2 summarized the findings of an ongoing project that tries to deepen our understanding in the determinants of the trends that we have noted above (Masciandaro, Quintyn and
Taylor, (2008)). That paper extended the above set of countries to 50 and developed a model to capture the potential determinants of governance arrangements for supervisors. It was estimated using order logit estimated on data after the reforms. The model is estimated for total governance (sum of I and A) and I and A separately. Box 1 presents the general specification. Table 2 presents the result in summary form, only indicating which variables are significant and at which level.
Box 1 – The governance model to be tested
The general specification tested is represented by equations (1) and (2):
(1)
(2)
(supgov) i
= β
1
(governance) i
+ β
2
(gdp/capita) i
+ β
3
(market structure) i
+ β
4
(concentration) i
+ β
5
(common law) i
+ β
6
(ger/scand) i
+ β
7
(bandwagon) i
+ β
8
(crisis) i
+
β
9
(polity) i
+ β
10
(cb effect) i
+ ε
(supgov) i
= β
1
(governance) i
+ β
2
(gdp/capita) i
+ β
3
(market structure) i
+ β
4
(concentration) i
+ β
5
(common law) i
+ β
6
(ger/scand) i
+ β
7
(bandwagon) i
+ β
8
(crisis) i
+
β
9
(polity) i
+ β
11
(integrated supervisor) i +
ε with country i = 1...50.
Based on the governance-nexus developed in Quintyn (2007), the point of departure of this model is that governance arrangements (supgov) are expected to depend positively on the quality of public sector governance in the country (governance).
A number of control variables are added to test the hypothesis. The first control variable is GDP per capita to test for the effect of the economic size of the country and its level of economic development (sign a priory unknown).
Market structure measures whether there is a different impact on governance if the markets are bank- or market dominated (sign a priori unknown). The concentration ratio of the banking system is a measure of regulatory capture risk. The hypothesis is that more concentrated banking systems can more easily bundle their lobbying powers and influence the government’s decision with respect to the desirable degree of independence and accountability. However the sign in a priori not clear. The sector could lobby either for a strong, or a weak supervisor.
Common Law and German-Scandinavian law measure the impact of the legal system on governance arrangements. The sign is a priori undetermined. The bandwagon variable measures whether there is a fashion effect: as more and more countries are revisiting their governance arrangements one can wonder whether more recent reformers are inspired by the type of changes in governance arrangements that were introduced by earlier reformers (sign a priori undetermined). It is often stated that “it takes a crisis to reform.” Hence, the model also tests for the impact of a financial sector crisis experience on governance arrangements. The expected sign is not clear because governments could react in various ways to a crisis. The model also tests for the political factor, by introducing a variable for the political system, polity . It is expected that mature democracies are more comfortable in granting independence to the supervisor and introducing accountability arrangements because the system has the necessary level of checks and balances. So the expected sign is positive with the political system variable.
Finally, if we assume that the decision about the supervisory architecture and its governance arrangements is a

23 two-stage process, we can separately test for the impact of two additional variables. In equation 1, we control for the impact of the policymaker’s decision to have, or keep, the supervisor in the central bank . The sign is a priori undetermined. The other part of the decision (equation 2) concerns the degree of integration of the supervisor—the choice between sector-specific supervisors on the one extreme and fully unified (or integrated) supervisors on the other hand. The effect on total governance is a priori unknown ( integrated supervisor ).
The results yield a number of new and interesting insights, and confirm a number of others:

Analyzing the overall ratings (column 1), we find that supervisory governance arrangements are strongly driven by the quality of the country’s public sector governance. In addition, we note that a bandwagon effect is at play. Polity also plays a significant role, meaning that the more mature a democracy is, the more the government is willing to grant independence, with accompanying accountability. The impact of past crises is significant but less so than for the other significant variables; 37

We also note that the presence of supervisors in the central bank has a significant and negative impact on governance arrangements, while more integrated supervisors outside the central bank increase the probability of higher governance ratings;

However, when dissecting the results by analyzing the determinants of I and A, we find that the probability that supervisors have solid I and A arrangements is driven by different factors. In other words, this analysis strongly confirms our earlier impression that policymakers do not necessarily see I and A as two sides of the same coin;

On I, the quality of public sector governance does not seem to have a significant impact. The probability that supervisors have high independence ratings seems to depend more on factors such as the country’s economic size, its political system, as well as a demonstration effect. The latter implies that, as the idea of independent regulatory agencies (including central banks) continues to spread around the world, more countries are willing to embrace it;

The probability of having elaborate accountability arrangements, on the other hand, is very strongly driven by the quality of the country’s public sector governance. A recent crisis experience and, again, the political system are also increasing the
37 The sign the german-scandinavian law factor is puzzling (the other law factors are insignificant). A likely explanation is that this variable captures some other effect as there are no grounds to believe that the German legal tradition has a bias against independence. Inspection of the data shows that all the countries that fall under this law tradition have fairly low rates of supervisory independence for a variety of unrelated reasons. If this is the case, it means that law-traditions have no impact on governance arrangements, and that we need to look for another variable to capture the effects that we see in the German law-variable.

24 likelihood of solid accountability. 38 The presence of the central bank has a negative, though insignificant impact on accountability, but for those supervisors located outside the central bank, the more unified they are—i.e. the newer types of agencies—the more likely they will have elaborate accountability arrangements in place.
Table 2. Summary Results of Ordered Logit estimates with Total Governance, Independence and Accountability as the dependent variables (50 observations)
Total independence accountability governance
+ ++ Public sector governance
GDP/capita +
Market structure
++ Concentration in banking sector
German/Scandinavian - - - law effect
Bandwagon effect +++
Financial crisis polity
Central bank effect
++
- - -
+++
+++
-
++
+
Supervisory integration effect
+++ +
Note: “+” and “–“ refers to the sign of the variable. The level of significance is reflected in the number of them with three meaning significant at the 1 percent level, two at the 5 percent level, and one at the 10 percent level.
38 Note that “polity” is the only variable that is significant for both I and A. So the more mature a democracy is, the more attention will be given to good I and A arrangements.

25
V. C
ONCLUSIONS
The mushrooming of IRAs as a distinctive mode of governance in the emerging regulatory state faces the governments with a number of new challenges. On the one hand, delegation to such agencies operating at arm’s length from the government resolves a number of policy problems. On the other hand it raises the twin issue of (democratic) legitimacy of these agencies in the constitutional and legal setting of the country, and of the delegating government when several key areas of policy making are outside its direct control. So the separation of power involved in this new mode of governance begs for clarity in the interactions between these new regulators and the other branches of government, and for governance arrangements that provide the right incentives to all stakeholders involved so that they all gain from this new mode of governance.
In order to find satisfying answers to these questions, it is tempting to look in the first place at the history of the relationship between independent central banks and governments. In many ways they are forerunners of the current delegation trend. The main lesson that this paper draws from the (abundant) CBI literature is that, while operating at arm’s length from the government has brought benefits to the effectiveness of monetary policy, the model has been characterized by an independence-bias. To enhance the effectiveness of the independence-model and avoid a political backlash following from too much unchecked independence, the model needs to be complemented (or balanced) by other governance arrangements. A consensus is emerging among academics and practitioners that we should focus more on “G” than on “I.”
This lesson has been made operational in the next part of this paper, where we presented a governance model for IRAs, based on four pillars. We argue that the IRA governance model should be built upon independence, accountability, transparency and integrity arrangements.
We demonstrated the virtuous interaction between these four pillars, and argued that, together, they can bring clarity in the IRA-government relationship, with beneficial effects and incentives for both sides. A balanced governance model for IRAs is able to solve the democratic legitimacy problems on both sides: the combination of accountability, transparency and integrity makes independent policymaking effective and, thus provides legitimacy to the actions of the IRA. In others words, the four pillars taken together determine the distance from the government and the ways in which the relationship at this distance is dealt with in a balanced way.
At the same time, these arrangements provide the necessary assurances for the government that the IRAs are “in check”, i.e. broadly aligned with the government’s broader policy objectives. This approach should assist in addressing many of the concerns that governments have with regard to the potential loss of legitimacy involved in delegating important domains of policy to agencies operating at arm’s length.
To underscore a number of the arguments made in the paper, the final section illustrates how governments are struggling to shape governance arrangements in practice. We elaborated on

26 the example of financial sector supervisors, a type of IRA that is positioned somewhere between central banks (a related mandate, and because some supervisors are housed in central banks) and the IRAs in charge of competition policy. The financial regulator operates on politically very sensitive domain, not the least because of its close connection with the work and mandate of central banks. So it is no surprise that the identification of satisfactory governance arrangements is a sensitive topic. The analysis presented in this paper shows that policymakers are giving the supervisors more independence than in the past, but more importantly, they are paying much more attention to accountability. At the same time, we discern some reluctance to grant full independence—demonstrated by the introduction (or maintenance) of control mechanisms. The latter tendency seems part of a broader issue that should be addressed, namely that policymakers do not seem to treat I and A as two sides of the same coin.
The other finding is that the really “new” institutions (such as the integrated supervisors) are often endowed with governance models that are strikingly different from the central banks in these countries. Germany is a case in point. 39 This finding shows that the CBI model is not blindly copied and, what is more, that governments are evaluating the CBI model critically and try to avoid some of the “mistakes” made in the past. In other words, “G” is gradually being considered as more important the “I.”
It is hoped that the approach presented in this paper contributes to the theoretical and empirical work on a balanced relationship between IRAs (including central banks) and the three branches of government in a world where regulation continues to spread as the dominant mode of governance of the society. It should be noted that the operational arrangements presented here apply first and foremost to the national jurisdictions in, mainly, the industrialized world. In that regard, two other questions need further attention. First, to what extent, and how, are the principles and operational arrangements discussed in this paper applicable to the developing world where, typically, checks and balances are less developed.
Secondly, how should we deal with regulatory governance at the supra- or international levels, where the different branches of government are not represented or constituted in the same way as in the traditional nation-state, and, hence the game of checks and balances is also different than at the level of the nation-state.
40
39 See Westrup (2007) for a narrative analysis of how the interaction among the various political interests finally resulted in a supervisor that was placed outside the Bundesbank and received less independence than the latter.
40 For contributions to the second aspect, see e.g. Mooslechner et al. (2006).

27
R
EFERENCES
Alesina, Alberto (1989), Inflation, Unemployment and Politics in Industrial Democracies,
Economic Policy , 8 , 55-98.
—— and Roberta Gatti (1995), Independent Central Banks: Low Inflation at no Cost?,
American Economic Review, 85 , 196-200.
—— and Jeffey D. Sachs (1988), Political Parties and the Business Cycle in the United
States: 1948-1984, Journal of Money, Credit and Banking , 20 , 63-82.
—— and Lawrence H. Summer (1993), Central Bank Independence and Macroeconomic
Performances: Some Comparative Evidence’, Journal of Money, Credit and Banking ,
25 , 151-62.
—— and Guido Tabellini (2004), Bureaucrats or Politicians, NBER Working Papers , nr. 10241, National Bureau of Economic Research, Cambridge, Massachusetts.
Amtenbrink, Fabian, 1999, “ The Democratic Accountability of Central Banks: A
Comparative Study of the ECB,”
(Oxford and Portland: Hart Pub.).
Bade, Robert and Michael Parkin (1977), Central Bank Laws and Monetary Policy: A
Preliminary Investigation, University of Western Ontario , Ontario.
Bagheri, Fatholla M. and Nader Habibi (1998), Political Institutions and Central Bank
Independence: a Cross-Country Analysis’, Public Choice , 96 , 187-204.
Banaian, King and William A. Luksetish (2001), Central Bank Independence, Economic
Freedom and Inflation Rates, Economic Inquiry, 39 , 149-161.
Barro, Robert J and David B. Gordon (1983), A Positive Theory of Monetary Policy in a
Natural Rate Model, Journal of Political Economy , 91 , 589-610.
Behn, Robert, 2001, “Rethinking Democratic Accountability,” Washington: Brookings
Institution Press.
Berger, Hans (1997), The Bundesbank’s Path to Independence. Evidence from the 1950s’,
Public Choice , 93 , 427-53.

28
——, Jakob de Haan and Sylvester C.W. Eijffinger (2000), Central Bank Independence: an
Update of Theory and Evidence, CESifo Working Papers , n. 255.
Berger Helge, Volker Nitsch, and Tonny Lybek, 2006, “Central Bank Boards around the
World: Why does Membership Size differ?”
IMF Working Papers , 281, International
Monetary Fund, Washington D.C.
Bernhard, William (1998), A Political Explanation of Variations in Central Bank
Independence’, American Political Science Review , 92 , 311-27.
Bibow, (2004), “Reflections on the current fashion for central bank independence”
Cambridge Journal of Economics, Vol. 28, No. 4, pp 540 – 576.
Boot, Arnoud W.A., and Anjan V. Thakor (1993), Self-Interested Bank Regulation,
American Economic Review , 83 , (2), 206–212.
Bovens, Mark, 2004, “Public Accountability,” in Ferlie, E., Lynne, L., and Pollitt, C., (eds)
“The Oxford Handbook of Public Management,” (Oxford: Oxford University Press).
Briault, Clive, 1996, “Independence and Accountability”
Bank of Japan Institute for
Monetary and Economic Studies, Discussion Paper Series, No. 98, March.
Buiter, Willem, (2007), “How Robust is the new conventional wisdom in monetary policy?
The surprising fragility of the theoretical foundations of inflation targeting and central bank independence.” Paper presented at various conferences and seminars.
Christensen, Tom, and Per Lægreid, eds., 2006,
Autonomy and Regulation: Coping with
Agencies in the Modern State (Cheltenham, U.K.: Edward Elgar)
Crowe, Christopher (2006), Goal – Independence Central Banks: Why Politicians decide to delegate, IMF Working Papers , 256, International Monetary Fund, Washington D.C.
—— and Ellen E. Meade (forthcoming), Central Bank Governance: What is it and Does it
Matter?, Journal of Economic Perspectives , forthcoming.
Cukierman, Alex (1992), Central Bank Strategy, Credibility, and Autonomy , MIT Press,
Cambridge, Massachusetts.
——, (2007), “Central Bank Independence and Monetary Policymaking Institutions – Past,
Present and Future” paper presented at the September 2005 meeting of the Chilean
Economic Association, Vina del Mar, Chile.

29
——, and Steven B. Webb (1995), Political Influence on the Central Bank: International
Evidence’, World Bank Economic Review , 9 , 397-423.
——, Steven B. Webb, and Bilin Neyapti (1992), Measuring the Independence of Central
Banks and its Effects on Policy Outcomes,”
World Bank Economic Review, 6, 353–
98.
Das, Udaibir and Marc Quintyn (2002), Financial Crisis Prevention and Crisis
Management—The Role of Regulatory Governance, in Financial Sector Governance:
The Roles of the Public and Private Sectors , ed. by Robert Litan, Michel Pomerleano, and V. Sundararajan, Brookings Institution Press, Washington D.C.
——, Marc Quintyn and Kina Chenard (2004), Does Regulatory Governance Matter for
Financial System Stability? An Empirical Analysis, The Evolving Financial System and Public Policy , Bank of Canada, Ottawa.
De Haan, Jakob and Gert J. Van’t Hag (1995), Variation in Central Bank Independence across Countries: Some Provisional Empirical Evidence, Public Choice , 85 , 235-251.
——, Fabian Amtenbrink and Sylvester Eijffinger (1999), Accountability of Central Banks:
Aspects and Quantification, Banca Nazionale del Lavoro Quarterly Review, n. 209,
167–93.
Eggertsson, Gauti and Eric Le Borgne (2003), A Political Agency Theory of Central Bank
Independence’, IMF Working Papers , n.144, International Monetary Fund,
Washington D.C.
Eijffinger, Sylvester, M. Hoeberichts, and E. Schaling, (2000), “A Theory of Central Bank
Accountability”, CEPR Discussion Paper Series, No. 2354.
Eijffinger, Sylvester, and Petria Geraarts (2006), How Transparent are Central Banks?,
European Journal of Political Economy , 22 , 1-21.
—— and Marco Hoeberichts (2002), Central Bank Accountability and Transparency: Theory and Some Evidence, International Finance , 1 , 73-96.
Fischer, Stanley, 1995, Central Bank Independence Revisited, American Economic Review,
Papers and Proceedings, Vol. 85, 201–206, May.

30
Franzese, Robert J. (1999), Partially Independent Central Banks, Politically Responsive
Governments, and Inflation, American Journal of Political Science , 43 , 691-706.
Frisell Lars, Kasper Roszbach and Giancarlo Spagnolo (2007), Governing the Governors: a
Clinical Study of Central Banks . Paper presented at the SUERF – Bank of Cyprus
Seminar “Corporate Governance in Financial Institutions” Nicosia, March 29-30,
2007.
Gilardi, Fabrizio, (2002), “Policy credibility and delegation to independent regulatory agencies: a comparative empirical analysis.” Journal of European Public Policy, Vol.
9, No.6, p. 873-893.
———, (2005a), “Evaluating Independent Regulators” in Designing Independent and
Accountable Regulatory Agencies for High Quality Regulation , Proceedings of an
Expert Meeting in London (January 10–11), Organization for Economic Cooperation and Development, pp. 101-125.
———, (2005b), “The formal independence of regulators: A comparison of 17 countries and
7 sectors.”
Swiss Political Science Review, Vol. 11, No. 4, p. 139-167.
———, (2006), “
Institutional Change in regulatory policies: regulation through independent agencies and the three new institutionalisms
.”, in Jordana, J., and D.
Levi-Faur (eds), “The Politics of Regulation” Edward Elgar, Cheltenham UK,
Northampton, MA, USA, 335pp.
———, (2007), “The same but different: Central Banks, Regulatory Agencies, and the
Politics of Delegation to Independent Authorities.”
Comparative European Politics,
Vol. 0, p. 1 -25.
Goodhart, Charles, 2001, “Regulating the Regulators—Accountability and Control,” pp.
151–164, in E. Ferran and C.A.E. Goodhart (ed), “Regulating Financial Services and
Markets in the 21 st
Century” Hart Publishing, Oxford, United Kingdom.
———, (2007), “Introduction”, in Masciandaro D. and Quintyn M. (Eds.),
Designing
Financial Supervision Institutions: Independence, Accountability and Governance ,
Edward Elgar, Cheltenham.
Goodhart, Charles, and Ellen Meade, (2004), “Central banks and Supreme Courts” Moneda y
Credito, No. 218, pp. 11-59.
Goodman, John B. (1991), The Politics of Central Bank Independence, Comparative Politics ,
23 , 329-49.

31
———, (1998b),
The Evolution of Central Banks , MIT Press, Cambridge, Massachusetts.
Grilli, Vittorio, Donato Masciandaro and Guido Tabellini (1991), Political and Monetary
Institutions and Public Financial Policies in the Industrial Countries, Economic
Policy, 13 , 341–92.
Hasan, Iftekhar and Loretta Mester (forthcoming), Corporate Governance and Effective
Central Banking: Cross-Country Empirical Evidence’, in P. Syklos, M. Bohl and M.
Wohart (eds), Frontiers in Central Banking , Elsevier, Amsterdam, forthcoming.
Hayo, Bernd (1998), Inflation Culture, Central Bank Independence and Price Stability,
European Journal of Political Economy , 14 , 241-63.
—— and Jens Voigt, (2000) , “Inflation, central bank independence and the legal system.”
Mimeo.
—— and Carsten Hefeker (2001), Do We Really Need Central Bank Independence? A
Critical Re-examination, WWZ Discussion Papers , n.3. University of Basle.
Hughes, Hallet A and Jan Libich (2006), Central Bank Independence, Accountability and
Transparency: Complements or Strategic Substitutes?, CEPR Discussion Papers , n.5470.
Hüpkes, Eva H.G., Marc Quintyn, and Michael Taylor, ( 2005), The Accountability of
Financial Sector Supervisors: Theory and Practice, European Business Law Review ,
16 , 1575–1620.
International Monetary Fund, 2000, “Supporting Document to the Code of Good Practices on
Transparency in Monetary and Financial Policies” (Washington).
Jacobzone, Stephane, 2005, “Independent Regulatory Authorities in OECD Countries: an
Overview” in
Designing Independent and Accountable Regulatory Agencies for High
Quality Regulation , Proceedings of an Expert Meeting in London (January 10–11),
Organization for Economic Cooperation and Development, pp. 72-88.
Jacome Luis and Franciso Vasquez, (2005), Any Link between Legal Central Bank
Independence and Inflation? Evidence from the Latin American and the Caribbean’,
IMF Working Papers , 75, International Monetary Fund, Washington D.C.

32
Jordana, Jacinta and David Levi-Faur, (2004), “ The politics of regulation in the age of governance
” pp. 1-28, in Jordana, J., and D. Levi-Faur (eds), “The Politics of
Regulation” Edward Elgar, Cheltenham UK, Northampton, MA, USA, 335pp.
Kane, Edward (1990), Principal-Agent Problems in S&L Salvage, Journal of Finance, 45 ,
755–764.
Keefer, Philip and David Stasavage (2001), Bureaucratic delegation and political institutions: when are independent central banks irrelevant?
, mimeo.
Kenen, Peter, (1995), “ Economic and Monetary Union in Europe: Moving beyond
Maastricht ”, Cambridge, UK, New York, NY, Cambridge University Press.
Kydland, Finn E. and Edward C. Prescott (1977), Rules rather than Discretion: The
Inconsistency of Optimal Plans, Journal of Political Economy , 85 , 473-492.
Klomp, Jeroen G. and Jakob de Haan (2007), Inflation and Central Bank Independence: a
Meta Regression Analysis
. Paper presented at the Central Banking Conference “Does
Central Bank Independence Still Matter?” Bocconi University, Milan, September 14
– 15, 2007.
Lastra, Rosa Maria (1996), Central Banking and Banking Regulation, Financial Markets
Group, London School of Economics, London.
Lastra, Rosa, and Shams, Heba, 2001, “Public Accountability in the Financial Sector,” in
Regulating Financial Services and Markets in the 21 st Century , ed. by Eilis Ferran and Charles Goodhart (Oxford: Hart Publishing).
Lodge, Martin, (2006), “ Accountability and Transparency in regulation: critiques, doctrines and instruments” pp. 124 – 143, in Jordana, J. and D. Levi-Faur (eds), “The Politics of Regulation” Edward Elgar, Cheltenham UK, Northampton, MA, USA, 335pp.
Lohmann, Susanne (1997), Partisan Control of the Money Supply and Decentralized
Appointment Powers’, European Journal of Political Economy , 13 , 225-246.
Lybek, Tonny, and Jo Anne Morris (2004), Central Bank Governance: a Survey of Boards and Management, IMF Working Papers , 236, International Monetary Fund,
Washington D.C.
Majone, Giandomenico, 1993, ‘Controlling Regulatory Bureaucracies: Lessons from the
American Experience’,
European University Institute Working Papers No.93/3.

33
———, 1994, “Independence vs. Accountability? Non-Majoritarian Institutions and
Democratic Government in Europe.” European University Institute Working Papers
Nº 94/3.
———, 1999, “The regulatory state and its Legitimacy Problems.”,
West European
Politics, Vol. 22, No.1, pp. 1-24.
———, 2001, “Nonmajoritarian Institutions and the Limits of Democratic Governance: A political transaction-cost approach.”, Journal of Institutional and Theoretical
Economics, Vol. 157, no.1, p. 57-78.
———, 2005, “Strategy and Structure: The Political Economy of Agency Independence and Accountability,” in Designing Independent and Accountable Regulatory
Agencies for High Quality Regulation , Proceedings of an Expert Meeting in London
(January 10–11), Organization for Economic Cooperation and Development, pp.
126–55.
Masciandaro, Donato (1993), Central Bank Independence, Banking Supervision and
Inflation ., Working Papers, IGIER, n.53, Bocconi University, Milan.
———, (1995), Designing a Central bank: Social Player, Monetary Agent or Banking
Agent?’, Open Economies Review , 6 , 399-410.
—— , Marc Quintyn, and Michael Taylor (forthcoming), Independence and Accountability in Supervision. Comparing Central Banks and Financial Authorities, in P. Syklos, M.
Bohl and M. Wohart (eds), Frontiers in Central Banking , Elsevier, Amsterdam, forthcoming.
—— and Franco Spinelli (1994), Central Banks’ Independence: Institutional Determinants,
Rankings and Central Bankers’ Views’, Scottish Journal of Political Economy, 41 ,
434-43.
Maxfield, Sylvia (1997), Gatekeepers of Growth . The International Political Economy of
Central Banking in Developing Countries , Princeton University Press, Princeton.
McCallum, Benneth. T. (1995), “Two fallacies concerning central bank independence”,
American Economic Review , Papers and Proceedings, vol. 85 (May), pp. 207-211.
Milesi Ferretti, Gian Maria (1995), The Disadvantage of Tying Their Hands: on the Political
Economy of Policy Commitments’, Economic Journal , 105 , 1381-402.
Miller, Geoffey (1998), An Interest Group Theory of Central Bank Independence, Journal of
Legal Studies , 27 , 433-453.

34
Minogue, Martin and Carino Ledivina, (eds), (2006) “ Regulatory Governance in Developing
Countries”
The CRC Series on Competition, Regulation and Development, Edward
Elgar, Cheltenham, UK – Northampton, MA, USA.
Moe, Terry, 1987, “Interests, Institutions, and Positive Theory: the Politics of the NLRB,”
Studies in American Political Development , Vol. 2, pp. 236–99.
Mooslechner, P., H. Schubert, and B. Weber, (eds), 2006, The Political Economy of
Financial Market Regulation (Cheltenham, United Kingdom; Northampton,
Massachusetts: Edward Elgar).
Moser, Peter, (1999), Checks and Balances, and the Supply of Central Bank Independence,
European Economic Review , 43 , 1569-593.
Ogus, Anthony, 2002, “Comparing Regulatory Systems: Institutions, Processes and Legal
Forms in Industrialized Countries.” Centre on Regulation and Competition Working
Paper Series, No. 35.
Oosterloo, Sander and J. de Haan, 2003, “A Survey of Institutional Frameworks for Financial
Stability,”
Occasional Studies, De Nederlandsche Bank, Vol. I, No. 4.
Polillo, Simone, and Mauro Guillén (2005), “Globalization Pressures and the State: The worldwide spread of central bank independence.”
American Journal of Sociology,
Vol. 110, No.6, p. 1764-1802.
Pollitt Christopher, and Colin Talbot, (eds), (2004),
“Unbundling Government: A Critical
Analysis of the Global Trends in Agencies, Quangos and Contractualisation.”
London, Routledge.
Pollitt, Christopher, C. Talbot, J. Caulfield, and A. Smullen, (2004), “ Agencies”
Basingstoke: Palgrave Macmillan.
Posen, Adam S. (1995), Declaration are not Enough: Financial Sectors Sources of Central
Bank Independence’, in B. Bernanke and J. Rotemberg (eds) , NBER Macroeconomics
Annual 1995 , MIT Press, Cambridge Massachusetts.
Quintyn, Marc (2007), Governance of Financial Supervisors and its Effects – Some
Stocktaking , Paper presented at the SUERF – Bank of Cyprus Seminar “Corporate
Governance in Financial Institutions” Nicosia, March 29-30, 2007.

35
—— and Michael W. Taylor (2003), Regulatory and Supervisory Independence and
Financial Stability, CESifo, Economic Studies, 49 , 259–94.
—— and Michael W. Taylor (2007), Robust Regulators and Their Political Masters, in
Masciandaro D. and Quintyn M. (Eds.), Designing Financial Supervision Institutions:
Independence, Accountability and Governance , Edward Elgar, Cheltenham.
——, Ramirez Silvia and Michael W. Taylor (2007), The Fear of Freedom. Politicians and the Independence and Accountability of Financial Supervisors, in Masciandaro D. and Quintyn M. (Eds.), Designing Financial Supervision Institutions: Independence,
Accountability and Governance , Edward Elgar, Cheltenham.
Rogoff, Kenneth (1985), Optimal Degree of Commitment to an Intermediate Monetary
Target: Inflation Gains Versus Stabilization Costs, Quarterly Journal of Economics ,
100 , (November), pp. 1169–89.
Shiller, Robert J. (1997), “Why do people dislike inflation?” in Reducing
Inflation: Motivation and Strategy , edited by Christina D. Romer and David H.
Romer, University of Chicago Press.
Scott, Colin, (2000), “Accountability in the Regulatory State.” Journal of Law and Society,
Vol. 27, No.1, p.38-69.
Sieg, Gernot (1997), A Model of Partisan Central Banks and Opportunistic Business Cycles,
European Journal of Political Economy , 13 , 503-16.
Siklos, Pierre L. (2002), The Changing Face of Central Banking. Evolutionary Trends since
World War II, Cambridge University Press, Cambridge UK:
Stigler, George (1971), The Theory of Economic Regulation, Bell Journal of Economics and Management Science, 6 , (2), 114–141.
Stiglitz, Joseph, (1998), “Central banking in a democratic society.” De Economist, Vol. 146, p. 199-226.
Thatcher, Mark (2002), “Regulation after delegation: Independent Regulatory agencies in
Europe”
Journal of European Public Policy, Vol. 9, No.6, p. 954-972.
Tognato, Carlo (2004), “In the name of money: Central banking as a secular religion”,
Manuel Ancizar Lecture, Universidad Nacional, Bogotá, October 30; http://research.yale.edu/ccs/research/working-papers/tognato_banking.pdf

36
Toniolo, Gianni (1988) (ed.), Central Bank Independence in Historical Perspective’, de
Gruyter, Berlin–New York.
University of Maryland (2006), Polity IV project, http://www.cidcm.umd.edu/polity
Van der Cruijsen Carin and Sylvester Eijffinger (forthcoming), The Economic Impact of
Central Bank Transparency: A Survey, in P. Syklos, M. Bohl and M. Wohart (eds),
Frontiers in Central Banking , Elsevier, Amsterdam, forthcoming.
Van Lelyveld, Iman, (2000), Inflation, Institutions and Preferences , Ph.D thesis, University of Nijmegen, mimeo.
Vaubel, Roland (1997), The Bureaucratic and Partisan Behaviour of Independent Central
Banks, European Journal of Political Economy , 13 , 214-24.
Vibert, Frank , 2007,
“The Rise of the Unelected. Democracy and the New Separation of
Powers,” (Cambridge University Press: Cambridge, New York), 199pp.
Westrup, Johnathan (2007), Independence and Accountability: Why Politics Matter, in
Donato Masciandaro and Marc Quintyn (eds) Designing Financial Supervision
Institutions: Independence, Accountability, and Governance, Edward Elgar,
Cheltenham, U.K.
Williamson, Oliver, (2000), “The New Institutional Economics: taking stock, looking ahead.”
Journal of Economic Literature, Vol. 38, No. 3, pp 595-613.
Wood, John (2007), The Meanings and Historical Background of Central Bank
Independence , Paper presented at the Central Banking Conference “Does Central
Bank Independence Still Matter?” Bocconi University, Milan, September 14 – 15,
2007.
Zilioli, Chiara, 2003, “Accountability and Independence: Irreconcilable Values or
Complementary Instruments for Democracy? The Specific Case of the European
Central Bank.” pp. 395–423 in G. Vandersonden (ed), “Mélanges en homage à Jean-
Victor Louis,” ULB, Brussels, Belgium.

100
80
60
40
20
0
0
Before +
10 20 30 40 50
Accountability
60
After
70 80
100
80
60
40
20
90 100
0