The International Monetary Fund published a working paper examining the macroeconomic effects of undermining central bank independence through politically motivated transitions of central bank governors. The paper links such transitions to declines in nominal and real short-term interest rates and increases in expected and realized inflation, alongside a short-run rise in GDP growth. The authors compile a new panel dataset covering 132 central bank governor transitions across 28 advanced and emerging market economies since 2000, documenting their timing, frequency and political drivers. Tenures of politically motivated appointees are associated with higher and more volatile inflation, and professional forecasters tend to expect these governors to react more dovishly to inflation shifts. Using local projections in a difference-in-difference setting, the paper finds the effects are more pronounced when the incoming governor professes unorthodox monetary policy views, and that long-term inflation expectations rise only in those cases. The working paper is presented as research in progress to elicit comments and does not necessarily represent the views of the IMF, its Executive Board or IMF management.
International Monetary Fund 2026-03-06
International Monetary Fund working paper finds politically motivated central bank governor transitions lower short rates and raise inflation
The International Monetary Fund released a working paper analyzing the macroeconomic impacts of politically motivated transitions of central bank governors, linking such changes to lower short-term interest rates and higher inflation. The study, covering 132 transitions in 28 economies since 2000, finds politically driven appointments lead to volatile inflation and dovish expectations. Effects are more pronounced with governors holding unorthodox monetary views, with long-term inflation expectations rising.