The Macroeconomic Consequences of Undermining Central Bank Independence: Evidence from Governor Transitions
IMF Working Papers, March 6, 2026
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Bibliographic details
- Authors: Marijn A. Bolhuis, Rui Mano, Hedda Thorell
- Published: March 6, 2026
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229039017.001
Study scope and data
- Authors: Marijn A. Bolhuis, Rui Mano, Hedda Thorell
- Date: March 6, 2026
- Dataset covers 132 central bank governor transitions in 28 advanced and emerging market economies since 2000.
- Publication details:
- Pages: 51
- Volume: 2026
- Issue: 040
- Series: Working Paper No. 2026/040
- DOI: https://doi.org/10.5089/9798229039017.001
- Stock No: WPIEA2026040
- ISBN: 9798229039017
- ISSN: 1018-5941
Research question and methodology
- Primary question:
- What are the macroeconomic consequences of undermining central bank independence through politically motivated transitions of central bank governors?
- Empirical approach:
- Leverages a new panel dataset of governor transitions.
- Uses local projections in a difference-in-difference setting to estimate dynamic responses following announcement of politically motivated governor transitions.
- Key classifications:
- Transitions identified as politically motivated versus not.
- Incoming governors classified as professing unorthodox views on monetary policy versus not.
Main findings
- Associations with politically motivated appointments:
- Tenures of governors with politically motivated appointments are associated with higher and more volatile inflation, both realized and expected.
- Professional forecasters tend to expect such governors to be more dovish when responding to shifts in inflation.
- Dynamic responses after announcement of politically motivated governor transitions:
- Nominal short rates decline.
- Real short rates decline.
- Expected inflation rises.
- Realized inflation rises.
- GDP growth increases in the aftermath, consistent with an expansionary short-run macroeconomic impulse.
- Role of unorthodox incoming governors:
- Effects (declines in short rates and rises in inflation and GDP growth) are more pronounced when the incoming governor professes unorthodox views on monetary policy.
- Long-term inflation expectations rise only in the case of unorthodox governors with politically motivated appointments, indicating larger costs to central bank credibility in those cases.
- Interpretation:
- Political interference in central bank leadership induces a temporary growth–inflation trade-off.
- Credibility costs manifest more strongly and persistently when politically motivated appointments bring unorthodox policymakers.
Policy-relevant implications
- Undermining central bank independence via politically motivated governor transitions:
- Raises near-term inflation and inflation volatility.
- Lowers nominal and real short-term interest rates following announcements.
- Can boost GDP growth in the short run, creating a temporary trade-off between growth and inflation.
- Credibility considerations:
- When politically motivated appointments are paired with incoming governors holding unorthodox views, long-term inflation expectations increase, signaling more persistent damage to monetary policy credibility.
- Significance for policymakers:
- Political interference in central bank leadership decisions can have measurable macroeconomic effects, including on inflation dynamics, interest rates, and short-run output—effects that depend on the views of the incoming governor.
Source: IMF Working Papers — "The Macroeconomic Consequences of Undermining Central Bank Independence: Evidence from Governor Transitions" (Marijn A. Bolhuis, Rui Mano, Hedda Thorell), Working Paper No. 2026/040, March 6, 2026.
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