Electoral Cycles in Macroprudential Regulation

78 Pages Posted: 5 Nov 2020

See all articles by Karsten Müller

Karsten Müller

National University of Singapore

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Date Written: December, 2019


Do politics matter for macroprudential policy? I show that changes to macroprudential regulation exhibit a predictable electoral cycle in the run-up to 221 elections across 58 countries from 2000 through 2014. Policies restricting mortgages and consumer credit are systematically less likely to be tightened before elections during credit booms and economic expansions. Consistent with theories of opportunistic political cycles, this pattern is stronger when election outcomes are uncertain or in countries where political interference is more likely. In contrast to monetary policy, I find limited evidence that central banks are uniquely insulated from political cycles in macroprudential policy. These results suggest that political pressures may limit the ability of regulators to “lean against the wind.”

Keywords: central bank independence, electoral cycles, macroprudential regulation, political economy, regulatory cycles

JEL Classification: G18, G21, G28, D72, D73, P16

Suggested Citation

Müller, Karsten, Electoral Cycles in Macroprudential Regulation (December, 2019). ESRB: Working Paper Series No. 2019/106, Available at SSRN: https://ssrn.com/abstract=3723442 or http://dx.doi.org/10.2139/ssrn.3723442

Karsten Müller (Contact Author)

National University of Singapore

15 Kent Ridge Dr

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