Do conservative central bankers weaken the chances of conservative politicians?

Maxime Menuet (), Hugo Oriola () and Patrick Villieu
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Maxime Menuet: LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne
Hugo Oriola: LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique
Patrick Villieu: LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne

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Abstract: In this paper, we challenge the claim that a conservative central bank strengthens the likelihood of a conservative government. In contrast, if an election is based on the comparative advantages of the candidates, an inflation-averse central banker can deter the chances of a conservative candidate because once inflation is removed, its comparative advantage in the fight against inflation disappears. We develop a theory based on a policy-mix game with electoral competition, predicting that a tighter monetary policy reduces the chances of a conservative (i.e., inflation-adverse) party while enhancing the chances for a liberal party. To test these predictions, we examine monthly data of British political history between 1987 and 2015, and show that an increase in the interest rate in the 10 months preceding a national election decreases the popularity of a Tory government. Our analysis on a panel of six OECD countries reveals that a pre-election increase of 1 percentage point in the main targeted interest rate rises the popularity of liberal parties by around 3.43 percentage points relative to its trend.

Date: 2024-03-08
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Published in Social Choice and Welfare, 2024, 62 (4), pp.681-738. ⟨10.1007/s00355-024-01509-2⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04648399

DOI: 10.1007/s00355-024-01509-2

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