Author (Your Name)

Siyang Xu, Colby CollegeFollow

Date of Award


Document Type

Honors Thesis (Open Access)


Colby College. Economics Dept.


Guillermo Vuletin

Second Advisor

David Findlay


This paper contributes to the literature that analyzes the exchange market reaction to the event of a central bank governor replacement. In order to solve the endogeneity problem, we develop a narrative approach-based on reports from credible newspapers-that classifies central bank governor replacements by their nature and causes. Using this new dataset on central bank independence for 31 countries over the period 1967-2012, we decompose all replacements into endogenous and exogenous cases with respect to inflation and financial market performance. We find that such a distinction is critical in understanding the exchange market reactions. We show that i) endogenous replacements, particularly the ones in developing countries, are the source of the negative exchange market “reaction” observed in previous literature, thus the causality is actually the other way around from exchange market performance to central bank governor replacement; ii) exchange markets in both developing and advanced countries do not respond to exogenous replacements. Our findings hold for the inclusion of country fixed effects, after controlling for international liquidity and exchange rate regimes.


central bank independence, narrative approach, endogeneity, exchange market

Multimedia URL