Political Pressure on Central Banks

Abstract

I construct a quarterly dataset on political pressure faced by 118 central banks from 2010 to 2018 using country-level reports. I code whether each central bank is reportedly succumbing to pressure, resisting pressure, or not facing pressure. About 10% of central banks reportedly face political pressure in an average year. Even central banks with high legal independence frequently face pressure--- nearly always for looser monetary policy. Pressure on the central bank is associated with higher inflation and inflation persistence. Pressure is more likely to come from governments with left-wing or nationalist executives, few checks and balances, or weak electoral competition.

Keywords: central bank independence, political pressure, monetary policy, inflation

JEL Classification: E42, E52, E58, E60, D72