In recent years, several high-profile episodes have renewed concerns about central bank independence in practice, as governments exert pressure on central banks, shaping leadership transitions and policy outcomes. These episodes are not anomalies. Across both advanced economies and emerging markets, governments periodically pressure central banks, force out inconvenient governors, and install allies. What are the macroeconomic consequences?

A large literature uses de jure independence indices to show that more independent central banks deliver lower inflation (Grilli et al. 1991, Cukierman et al. 1992, Romelli 2024). Likewise, Ioannidou et al. (2025) show that politically motivated appointments have become more common even as formal independence has been strengthened.  Recent work has also studied political pressure in specific country cases (Binder 2021, Drechsel 2024, Bianchi et al. 2023). But systematic cross-country causal evidence on the macroeconomic costs of undermining independence has remained elusive. In Bolhuis et al. (2026), we take a step toward improving our understanding of this issue. 

Politically motivated governor transitions

Our dataset covers 132 governor transitions in 28 advanced and emerging economies from 2000 to 2024. For each transition, we hand-collected announcement dates and read news around the time of announcement, primarily centralbanking.com, supplemented by Bloomberg and the Financial Times, to classify whether the governor transition was politically motivated (PMT) or routine. A transition is classified as politically motivated when reporting at the time reveals executive pressure on the outgoing governor, or political motivation behind the incoming appointment.

We also classified incoming governors as orthodox, those favouring conventional tools, rule-like inflation targeting, strict fiscal-monetary separation, or unorthodox, favouring unconventional instruments, flexible mandates, and willingness to coordinate with fiscal authorities. This classification draws on a large language model-assisted taxonomy applied to the public reporting of each governor’s full tenure.

Of all transition, 38% were politically motivated; 48% in emerging markets, 13% in advanced economies. Four stylised facts stand out. First, politically motivated transitions are geographically concentrated: most advanced economies experienced none over 25 years, while four countries, all emerging markets, had at least three-quarters of transitions classified as political. Second, political interference delivers less technocratic leadership: incoming governors after politically motivated transitions are more likely to come from politics or the private sector, less likely to hold a PhD or have been promoted from within the central bank, and about three times more likely to be unorthodox in their monetary policy views (36% versus 12% for routine transitions). Third, tenures of politically motivated central bank governors, especially unorthodox ones, are associated with higher and more volatile inflation and inflation expectations. Fourth, a high prevalence of politically motivated transitions correlates strongly with inflation above target, but only weakly with de jure independence (Figure 1). Countries where most transitions are political have long-term inflation expectations more than two percentage points above target; those with no political transitions sit close to target. Yet there is almost no correlation between de jure independence scores (Romelli 2024) and our measure of political interference.

Figure 1 Long-term inflation expectations, inflation targets, and de jure central bank independence

Note: This figure shows long-term inflation expectations, inflation targets, and de jure central bank independence, by frequency of politically motivated transitions (2000–2024). 
Source: Bolhuis et al. (2026), Romelli (2024), Consensus Economics.

Short-run macro-effects of governor transitions

Politically motivated transitions often occur when conditions are already deteriorating. To address this, we use methods that compare outcomes before and after transitions, controlling for pre-transition trends and restricting the control group to uncontaminated periods.

The results show that following the announcement of a politically motivated governor transition, nominal short-term interest rates fall persistently over the two years that follow, and real rates fall by even more as inflation expectations rise simultaneously (Figure 2). Realised inflation increases. GDP growth accelerates in the short run, consistent with an expansionary monetary impulse. Expected fiscal balances remain statistically unchanged, ruling out a concurrent fiscal expansion as the ultimate driver. Routine transitions exhibit none of these patterns.

Figure 2 Average effects of governor transitions

Note: This figure shows average effects over the first year (1y), over the second year (2y), and over the two years (1-2y) on short rates, real rates, GDP growth, inflation, short-term inflation expectations following politically motivated transitions. Circles show effects for politically motivated transitions, and triangles for unorthodox politically motivated transitions. Whiskers correspond to 90% confidence intervals using country-clustered wild bootstrap. 
Source: pooled LP-DiD estimates from Bolhuis et al. (2026).

Effects differ sharply by governor type. For unorthodox appointments, rates fall steeply and inflation rises strongly across both years. For orthodox appointments, the interest rate decline is more gradual, and the inflation response is insignificant. The short-run GDP boost is smaller but more robust for orthodox appointments.

These effects thus suggest that in the short-term, governments engaging in political transitions of central banks may be motivated by a preference for greater growth at the expense of higher inflation, by having central banks loosen monetary policy.

At the same time, long-term expectations (Figure 3) rise only for unorthodox politically motivated transitions, suggesting a loss of central bank credibility for those types but not necessarily for orthodox politically motivated transitions. 

Figure 3 Change in long-term inflation expectations following transitions

Note: Red lines show the median effect for countries undergoing a governor transition at time 0, and the blue lines show for non-treated synthetic control group. Dashed lines indicate precision, showing 25th and 75th percentiles for each sample. The horizontal axis shows six-month periods before and after transition announcements. 
Source: Synthetic control method estimates from Bolhuis et al. (2026).

Monetary policy, credibility, and learning under politically motivated governors

To understand why unorthodox politically motivated appointments weaken central bank credibility, we examine expectations anchoring and how markets perceive the reaction function of the central bank under different types of governors. 

Following politically motivated transitions, inflation expectations become less anchored: long-term expectations react much more strongly to inflation surprises during the tenure of politically appointed governors than under routine transitions (Figure 4). This effect is entirely driven by unorthodox governors. 

Using professional forecasts, we estimate perceived Taylor rules and find that markets expect politically appointed governors to be less responsive to inflation when setting interest rates, again almost exclusively in the case of unorthodox appointments. This is true both for the median forecaster and at the forecaster level where we can use very granular fixed effects.

Figure 4 Anchoring of long-term inflation expectations

Notes: Whiskers correspond to 90% confidence intervals using robust standard errors. 
Source: Bolhuis et al. (2026).

The gradual erosion of credibility following politically motivated transitions is consistent with a learning process in which markets update their beliefs about the central bank’s implicit inflation target by observing the real interest rate. Because the target is not directly observed, markets infer it from policy outcomes, especially when real rates deviate from expectations. When real interest rates turn out lower than expected, this is interpreted as a signal of a higher tolerance for inflation, leading markets to revise up their long-term inflation expectations. 

Consistent with this mechanism, the empirical evidence shows that long-term inflation expectations respond systematically to real interest rate surprises. Real rate surprises are larger under politically motivated transition governors, exclusively under unorthodox governors, leading markets to update their beliefs about the inflation target over time for those types of governors and not others. As a result, long-term inflation expectations rise gradually, even if the initial drift in expectations appears modest.

Conclusion

Governments that pressure central banks achieve lower rates and a short-run boost to economic growth. But over time, inflation rises and central bank credibility declines, especially if the incoming governor follows an unorthodox monetary policy framework. Two lessons follow. First, de facto independence matters: strong legal protections are no guarantee against political interference. Second, not all interference is equally damaging: the political appointment of orthodox governors substantially limits the loss of central bank credibility, while political appointments of unorthodox governors are associated with much higher inflation and particularly elevated long-term inflation expectations. 

Authors’ note: The views expressed are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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