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POLITICAL INTERFERENCE IN THE CENTRAL BANK: JEOPARDIZING CREDIBILITY The Argentine Case

Author

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  • Jose Santiago Mosquera

    (Departmento de Economía, Universidad de San Andrés)

Abstract

By December 2017, the Argentine economy had been experiencing good figures in variables such as GDP, employment, poverty, and inflationary dynamics. However, other variables warned about the process’ sustainability (rising current account deficit and high, relatively stable fiscal deficit). According to a part of the literature, this raises the possibility of the economy being in a situation of multiple equilibria, in which expectations play a key role in determining the actual equilibrium. Since, activity stagnated, and country risk began to increase, as did the exchange rate. Was there an event that broke the trend? In this paper, I implement a robust synthetic control strategy to argue that the change of the inflation targets (on December 28th) eroded the credibility of the central bank, signaling that the government was not willing to pursue the fiscal balance as believed. Consequently, this day acted as a coordinator of expectations towards a worse equilibrium than the one in which the economy was.

Suggested Citation

  • Jose Santiago Mosquera, 2021. "POLITICAL INTERFERENCE IN THE CENTRAL BANK: JEOPARDIZING CREDIBILITY The Argentine Case," Working Papers 161, Universidad de San Andres, Departamento de Economia, revised Dec 2021.
    • Handle: RePEc:sad:wpaper:161
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    File URL: https://webacademicos.udesa.edu.ar/pub/econ/doc161.pdf
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    More about this item

    Keywords

    Central Bank independence; credibility; synthetic control; multiple equilibria;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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