A student asked to grade her own work might give herself all As, or at least higher grades than a teacher would. A similar thing is happening with central bankers, research suggests—and with potentially significant economic consequences.
When researchers at central banks evaluated quantitative easing, one of the banks’ key responses to the 2008–09 financial crisis, they found a bigger impact than did independent economists from academia, according to the National Bank of Slovakia’s Brian Fabo, the European Central Bank’s Martina Jančoková, and Chicago Booth’s Elisabeth Kempf and Lubos Pastor.
Conflicts of interest may explain the rosier conclusions of the bank researchers. “Central bankers evaluating their own policies is not unlike pharmaceutical firms evaluating their own drugs,” the researchers write. “Both have skin in the game.”
Fabo, Jančoková, Kempf, and Pastor examined 54 research articles, released between 2000 and 2018, about the effects of quantitative easing, or QE, in which central banks bought securities in the open market to help bolster the economy during and after the financial crisis. Research studies that included central-bank officials among their authors found QE to have a higher impact on economic output and inflation than articles written solely by academicians, the researchers find.
Articles with central-bank authors found the peak impact of QE on economic output to be about 0.7 percentage points higher than articles without central-bank authors, the researchers find. The cumulative impact of QE at the end of 2018 was found in central-bank research to be half of a percentage point higher, Fabo, Jančoková, Kempf, and Pastor report. Those are significant differences, they write. All of the research with central-bank authors reported a statistically significant effect of QE on output; only half of the academic papers did so.