Money production and boundary construction: Explaining shifts in central bank independence

The central question guiding this analysis is “how do we explain variations in central bank legal independence across countries and over time?” In order to answer this question, I examined four instances of legal change in the status of the Federal Reserve System and the Bank of England. The model employed here combines elements of the various “new” institutionalist approaches with the intent of examining the organizational processes of institutional change. By examining the mental models of independence as composed of macro-ideologies, perceptions of experiences, networks of relationships, and strategies of action, this model disaggregates the sources of change. In addition, by examining central banks as institutions existing in the overlap, or boundary zone, between the arenas of economic and political exchange, the model explores the processes through which the boundaries between state, society, and economy are reproduced. Furthermore, the model provides a framework for understanding the relationship between legal and behavioral independence that may lead to a better understanding of political economic studies of the relationship between central bank independence and economic outcomes. The analysis revealed that geopolitical and economic transformations in the world system cause disruption at the level of the individual state that is experienced within its unique political culture. The interaction of geopolitical events and economic crises with the larger political culture leads policymakers and private sector actors to question the macro-ideological foundations of policy as new ideas about political and economic organization are intertwined with current organizational models. In turn changes in the macro-ideological context affect and interact with central bankers' interpretations of their personal and professional experiences, their relationships with other actors and organizations, and the independence constructing strategies of central bankers, creating a new mental model of central bank independence. Central bankers invoke these mental models to actively participate in changing the laws governing the relationship between the central bank and the state. Thus, shifts in behavioral independence eventually lead to changes in the legal independence of central banks, as new configurations of resources and networks become codified in law.