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Financial Sector Influence on Monetary Policy Through the Revolving Door - Is Stricter EU and US Regulation Needed?

The revolving door between government and the private sector has been criticized throughout history, based on the argument that it may lead to a pro-business bias in government policies. While this phenomenon has been extensively investigated for legislative and executive branch bodies, far less attention has been paid to its potential impact on central bank policymaking. This Master Thesis intends to contribute to bridging this gap, through a law and economics analysis of the revolving door between central banks and the financial sector. Is there a risk that incumbent central bankers implement monetary policies that may benefit the financial sector at the expense of social welfare? An analysis of the regulatory structure at the Federal Reserve and the European Central bank first shows a light treatment of revolving door related issues. Recent economic research investigating the career patterns of central bankers furthermore shows that incumbent central bankers who make use the revolving door with the financial sector tend to be more conservative than the average central banker, thus favoring higher interest rates. In the absence of agreement on what constitutes optimal monetary policy it however seems difficult to determine whether higher levels of central bank conservatism either lead to an increase or a decrease in social welfare.