Do Conservative Central Bankers Weaken the Chances of Conservative Politicians?

Maxime Menuet (1) , Hugo Oriola (1) , Patrick Villieu (1)

1 LEO - Laboratoire d'Économie d'Orleans

In this paper, we challenge the claim that an independent 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 the chances of a conservative (i.e., inflation-averse) party is reduced in the presence of tighter monetary policy. To test this prediction, we examine monthly data of British political history between 1960 and 2015. We show that a 1 percentage point increase in the interest rate in the 10 months prior to a national election decreases the popularity of a Tory government by approximately 0.75 percentage points relative to its trend.

Mots clés: monetary policy; elections; United Kingdom; comparative advantage

Domaines: Sciences de l'Homme et Société; Economies et finances

Maxime Menuet, Hugo Oriola, Patrick Villieu. Do Conservative Central Bankers Weaken the Chances of Conservative Politicians?. 2021. ⟨hal-03479411⟩