International and Monetary Economics Network (IMEN): What motivated you to start the paper “How Do Central Bank Governor Turnovers Affect Uncertainty and Lending Globally?”
Kristle Romero Cortés and Mandeep Singh: Both of us have previously worked at central banks, and that experience shaped the project. During policy meetings, there is constant discussion of developments in financial markets. At the same time, market participants closely watch central banks, and often delay decisions while waiting for policy signals. This made us realize that the direction of causality between financial markets and real economic outcomes is not always clear.
That observation led to a broader question: what happens when the leadership of a central bank changes? In corporate finance, a large body of literature shows that CEO transitions matter because uncertainty rises when leadership changes. We saw a clear parallel. A central bank governor plays a similarly pivotal role for the entire economy.
After refining the idea over time, we focused on central bank governor turnovers as a clean and systematic way to study how leadership changes affect uncertainty and, in turn, global lending.
IMEN: What would you consider the most relevant finding(s) of your paper?
The most important finding is that monetary policy uncertainty has real economic effects, and that this uncertainty can originate from the real side of the economy rather than financial markets alone. We focus on central bank governor transitions, which are predetermined and mandated by law and thus are not confounded by prevailing macroeconomic conditions, which are endogenous to aggregate uncertainty. These leadership transitions at central banks raise uncertainty even when policy rates themselves do not change, and that uncertainty reshapes banks’ global lending decisions.
A second key contribution is that we study a very specific and identifiable source of uncertainty, i.e., central bank governor turnovers, rather than broad, economy-wide uncertainty indices. This matters because it clarifies the source of uncertainty and, in principle, makes it easier to address through institutional design and policy choices.
Finally, we show that central bank independence plays a crucial moderating role. The effects we document are much weaker in countries where central banks are more independent from political and fiscal influence. This finding speaks directly to current policy debates: independence is not just a governance ideal; it has concrete implications for financial stability and global capital flows.
IMEN: Kevin Warsh will probably succeed Jay Powell as Fed chairman this year. What are your thoughts about this transition and its circumstances?
Central bank governor turnovers are regular events across countries. For instance, currently, there are speculations about Lagarde’s early departure from the ECB. For the US, the governor transition at the Fed is unfolding in a particularly sensitive environment (various ongoing geopolitical and trade issues). Over recent months, there has been unusually visible tension between the US administration and the Federal Reserve, which naturally raises questions about future policy direction and the Federal Reserve’s institutional independence. While the media often describes Kevin Warsh as a `hawk’, meaning he is someone who places a relatively high weight on controlling inflation, labels alone do not fully determine how a central bank chair will act once in office.
From the perspective of our paper, what matters most is not the eventual policy outcome but the period of uncertainty surrounding the Powell-to-Warsh transition. Even now, while the successor is now known, markets and banks are still trying to understand how Warsh will behave in practice, how independent he will be, how he will communicate, and how closely he will align with the administration. That uncertainty can influence financial decisions before any policy change actually occurs.
Our research shows that this kind of leadership transition can temporarily increase monetary policy uncertainty and affect global lending patterns, even if interest rates do not move immediately. Once the new chair’s approach becomes clearer through early decisions and communication, that uncertainty tends to fade. In that sense, the current Fed transition is a real-time example of the mechanism we study in the paper.
IMEN: Do you have other projects we can look forward to?
Yes. Financial intermediation is one of our key research interests. In another project we co-authored with Konark Saxena (ESCP, Paris), we examine how climate-related risks affect US banks. Broadly, the goal is to quantify the systemic physical climate risk in the US banking sector and to determine whether banks’ exposures to this risk have real implications. This is an area of growing importance for regulators, investors, and policymakers.
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