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Impact of political instability of monetary policy conduct and economic activity recovery: empirical investigation

Author

Listed:
  • Ihsen Abid

    (Imam Mohammad Ibn Saud Islamic University (IMSIU))

  • Salha Ben Salem

    (Faculty of Economics Sciences and Management of Mahdia)

  • Wajdi Frikha

    (University of Sfax)

Abstract

This empirical study aims to investigate the effects of political instability on economic volatility and monetary policy conduct. The econometric methodology adopted is the Panel Auto-Regressive Distributed Lag (PARDL). The instability variable was determined using the PCA method for 9 countries from the first quarter of 2010 to the first quarter of 2023. The empirical findings show that political instability had a negative influence on economic volatility and threatened monetary policy transmission. Moreover, it is confirmed that while political instability has a short-term effect on economic volatility, its impact on monetary policy transmission is more pronounced in the long term. These findings serve as a warning to policymakers, as political stability plays a crucial role in shaping macroeconomic outcomes through fiscal and monetary policy decisions. Therefore, authorities should strive to establish a stronger and more enduring political system capable of fostering activities conducive to sustainable economic development.

Suggested Citation

  • Ihsen Abid & Salha Ben Salem & Wajdi Frikha, 2024. "Impact of political instability of monetary policy conduct and economic activity recovery: empirical investigation," SN Business & Economics, Springer, vol. 4(12), pages 1-18, December.
    • Handle: RePEc:spr:snbeco:v:4:y:2024:i:12:d:10.1007_s43546-024-00750-2
    DOI: 10.1007/s43546-024-00750-2
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    More about this item

    Keywords

    Political instability; Economic volatility; Monetary policy conduct; Panel auto-regressive distributed lag;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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