WHEN THE ECONOMY begins to stall, central bankers must decide when to turn from inflation fighting to demand management. Recent global downturns have lasted longer than those of the mid-twentieth century, suggesting central banks have been too conservative, prioritizing phantom inflation fears in the face of global recession or even deflation. The dilemma of inflation-prevention versus recession-fighting raises questions not only about the balance between central bank's independence and their accountability to the public, but also about the beliefs and interests of people working within them. Which kinds of central bankers are conservative, and which are not?

Unfortunately, the political economy literature remains ill-positioned to address this question because scholars normally conflate central bank conservatism and central bank independence. This confusion of preferences and institutions arises from the unsupported assumptions that independent central bankers are naturally conservative and that government meddling is the only source of loose monetary policy. Rather than ground a large and influential literature in untested assumptions, we should disentangle our understanding of monetary preferences and institutions. To succeed, we need a theory and measure of central bank conservatism to complement existing work on central bank independence.

Understanding central bankers' monetary policy preferences begins with central bankers' career paths and career concerns. A central banker's career background may influence his personal beliefs about the ideal tradeoff between in flation and output stability, while at the same time providing the basis for an exchange: future careers for the central banker; policy influence for the shadow principal providing the central banker's next job.