Banking behaviour and political business cycle in Africa: The role of independent regulatory policies of the central bank

Daniel Ofori-Sasu, Elikplimi Komla Agbloyor, Dennis Nsafoah and Simplice Asongu

The Journal of Economic Asymmetries, 2024, vol. 29, issue C

Abstract: This study examines the effect of regulatory independence of the central bank in shaping the impact of electoral cycles on bank lending behaviour in Africa. It employs the dynamic system Generalized Method of Moments (SGMM) Two-Step estimator for a panel dataset of 54 African countries over the period, 2004–2022. The study found that banks lend substantially higher during election years, and reduce lending patterns thereafter. The study shows that countries that enforce monetary policy autonomy of the central bank induce a negative impact on bank lending behaviour while those that apply strong macro-prudential independent action and central bank independence reduce lending in the long term. The study provides evidence to support that regulatory independence of the central bank dampens the positive effect of elections on bank lending around election years while they amplify the reductive effects on bank lending after election periods. There is a wake-up call for countries with weak independent central bank regulatory policy to strengthen their independent regulatory policy frameworks and political institutions. This will enable them better strategize to yield a desirable outcome of bank lending to the real economy during election years.

Keywords: Political economy; Political credit cycles; Electoral cycle; Central bank regulatory independence; Bank lending behaviour (search for similar items in EconPapers)
JEL-codes: D7 D72 E3 E5 E61 G2 G21 G3 L10 L51 M21 P16 P26 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Banking Behaviour and Political Business Cycle in Africa: The Role of Independent Regulatory Policies of the Central Bank (2024)
Working Paper: Banking Behaviour and Political Business Cycle in Africa: The Role of Independent Regulatory Policies of the Central Bank (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:29:y:2024:i:c:s1703494924000045

DOI: 10.1016/j.jeca.2024.e00355

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