Individuals, Institutions, and Inflation: Conceptual Complexity, Central Bank Independence, and the Asian Crisis

Abstract

Previous research has demonstrated that greater levels of legal central bank independence produce favorable macroeconomic outcomes in the developed countries. This article expands the literature's focus on institutions to include a measure of conceptual complexity designed to capture individual-level variations in the cognitive style of central bankers themselves. I argue that the interaction of the cognitive style of central bankers with their respective institutional environments provides a more comprehensive account of the variation in achieving price stability across countries than the institutional measure alone. This hypothesis is tested in the context of the Asian Crisis as its effects diffused to the developed world between 1997 and 1999. The analysis demonstrates that different types of individuals working within different types of institutions achieved different levels of success in attaining price stability during the Asian Crisis. The most successful outcomes were achieved by conceptually complex central bankers working within legally independent central banks. The findings suggest that more research is needed concerning the individual level of analysis in the study of international political economy.

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