Inflation (Finance) -- Effect of elections on, Central banks and banking, Business cycles -- Political aspects
It has been argued that elections should affect inflation, but evidence thus far has not incontrovertibly shown such an effect. We argue that monetary institutions offset inflationary pressures originated by the electoral cycle. Delegation of monetary policy to independent central banks curbs politically induced inflationary pressures. The anti-inflationary effects of central bank independence depend on the governments’ incentives to boost the economy, a root of inflationary pressures. Those incentives are stronger in election years, especially when there is uncertainty about the electoral results. Independent central banks are better suited to counter inflation under those circumstances. Statistical analyses on a sample of 143 developing countries between 1980 and 2012 show that the anti-inflationary effects of central bank independence are larger during election years, and when elections are more contested. These results are robust to alternative model specifications and estimation techniques.
Garriga, Ana Carolina and Rodriguez, Cesar M., Stepping up during Elections: Independent Central Banks and Inflation (May 12, 2017). Available at http://dx.doi.org/10.2139/ssrn.2989162