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Stepping Up During Elections: Independent Central Banks And Inflation, Ana Caolina Garriga, Cesar M. Rodriguez

Economics Faculty Publications and Presentations

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 …