What type of central banker dampens the political business cycle? The case of Africa

Christine Strong

International Journal of Finance & Economics, 2024, vol. 29, issue 2, 1920-1946

Abstract: This article investigates the extent to which central bank independence can help to reduce political business cycles in Africa. Like previous studies, we find evidence of political cycles in our sample of 34 African countries for the period 1980–2018, but our findings show that politicians' ability to manipulate both fiscal and monetary policy depends on the degree of alliance between the fiscal authority and the monetary authority. Indeed, our analysis reveals that the political business cycle worsens when the central banker is an ally whereas a non‐ally central banker is associated with a decrease in the ability of the incumbent government to induce opportunistic political cycles, and this result holds, regardless of whether an African country is classified as a democracy or a dictatorship. In addition to that, despite the theoretical argument that political business cycles are unlikely to exist in dictatorships, we find evidence that both political budget and monetary cycles are prevalent in African dictatorships.

Date: 2024
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