The ECB's Independence under Siege - Political Audience Cost Theory and Unconventional Monetary Policy

Since the beginning of the global financial crisis in the fall of 2008, the European Central Bank (ECB) and other central banks around the world have reached far beyond classical monetary policy in order to prevent the collapse of the financial system. Today, several years after any immediate risk of financial collapse has passed and despite the questionable track record of unconventional monetary policy, monetary policy has still not normalized, leaving us wondering why the ECB continues to engage in unconventional monetary policy. Applying the Audience Cost Theory, this dissertation shows that the ECB is indeed susceptible to external audience groups’ monetary policy preferences. The analysis shows that these preferences are a good indicator of actual ECB policy-making between 2007 and 2014, as for the majority of the time period covered, the ECB’s refinancing rate moved in line with the average Eurozone monetary policy preference