Changes in central bank leadership and inflation dynamics

Abstract The macroeconomic impact of changing central bank leadership is examined. We empirically show that frequent changes in central bank leadership are associated with more volatile inflation rates. To provide a structural explanation, we develop a new technique for estimating a nonlinear New Keynesian model where the central bank varies its response to inflation. For a mix of developed and developing countries, we find that the stance of monetary policy often changes across governor tenures; these changes explain between 10% and 23% of the variation in inflation.