Do Central Banks Play Politics? Evidence from Elections
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2025-07-03
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en
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This thesis introduces a novel measure of de facto central bank independence (CBI) by analysing how central bank policy interest rates change in the lead-up to government elections across fifteen countries. The study’s hypothesis suggests that central banks with higher levels of de facto CBI are less likely to lower interest rates in the lead-up to elections, which would favour the incumbent government’s chance of re-election.
Using an event study approach in combination with a weighted Ordinary Least Squares (OLS) approach, the research showed with statistical significance that Türkiye consistently showed weak de facto CBI, with interest rates tending to fall noticeably in the lead-up to elections (e.g. Specification 1 showed they by 3.646 points in the three-month period prior to an election). While nearly all other results lacked statistical significance, consistent patterns across different specifications suggest stronger de facto CBI in nations such as Canada, Denmark, South Korea, Mexico, Romania, Sweden and Switzerland, where central banks were less prone to cutting interest rates in the event windows. On the other end of the spectrum, Russia, Poland, South Africa and the United States showed some patterns of weaker de facto CBI. Further research on de facto CBI is encouraged.
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Faculteit der Managementwetenschappen