Do Conservative Central Bankers Weaken the Chances of Conservative Politicians?

Mercredi | 2021-10-07
Salle des thèses – 12h

Hugo ORIOLA – Patrick VILLIEU – Maxime MENUET

This article challenges the claim that an independent conservative central bank strengthens the chances of a conservative government. In contrast, if the election is based on the comparative advantages of the different candidates, an inflation-fighter central banker can deter the chances of a conservative candidate, because, once inflation is removed, its comparative advantage in the fight against inflation disappears. Theoretically, in a policy-mix game with an electoral competition, we show that the chances of a conservative party is reduced in presence of a tighter monetary policy: a high interest rate will take the wind out of the sails of the conservative party. Empirically, we test the predictions of our theory using data from the British political context in the 1960-2015 period. Our estimations show that a 1 percentage point increase in the main interest rate in the 9 months prior to a national election will decrease the popularity of a Tory government by around 0.76 percentage point relatively to its trend.