The puzzle of the diffusion of central-bank independence reforms: Insights from an agent-based simulation

The emergence of an ever-widening sphere of global public policy is a new reality in a world characterized by the blurring of boundaries between the national and the global; by flows of ideas, people, and commodities; and by new global risks and opportunities. In this context, this article explores the empirical puzzle of the sudden outbreak of reforms leading to central-bank independence. How can we best understand the outbreak of reforms in the 1990s? It is suggested here that the reforms were diffused in a contagious and uncoordinated manner in a global policy process that may best be captured by Kingdon's policy stream model. We develop an agent-based model to evaluate the effects of three little-explored aspects of the diffusion process. These are (i) the likelihood of the outbreak of reform, (ii) the rate of adoption of the reform, and (iii) the time to outbreak. We find that the likelihood of outbreak depends on the saliency of a problem, in conjunction with the length of time that a problem has been on the public agenda. We also find that an increase in the size of the environment surveyed before a decision is made increases the rate of adoption but also the time to outbreak. The more global the information available for agents, the longer is the time to outbreak, but outbreaks unfold much faster.