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Electoral Cycles in Macroprudential Regulation

Author

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  • Karsten Müller

Abstract

Do politics matter for macroprudential policies? I show that changes in macroprudential regulation exhibit a predictable electoral cycle in the run-up to 221 elections across 58 countries from 2000 through 2014. Policies restricting mortgages and consumer credit are systematically looser before elections, particularly during economic expansions. Consistent with theories of opportunistic political cycles, this pattern is stronger when election outcomes are uncertain, regulators are closely tied to politicians, and institutions are poor. These results suggest that political pressures may limit the ability of regulators to "lean against the wind."

Suggested Citation

  • Karsten Müller, 2023. "Electoral Cycles in Macroprudential Regulation," American Economic Journal: Economic Policy, American Economic Association, vol. 15(4), pages 295-322, November.
    • Handle: RePEc:aea:aejpol:v:15:y:2023:i:4:p:295-322
    DOI: 10.1257/pol.20200626
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    Citations

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    Cited by:

    1. Smita Roy Trivedi, 2021. "Political Stability and the Effectiveness of Currency Based Macro Prudential Measures," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 28(2), pages 319-332, June.
    2. Aidt, Toke & Asatryan, Zareh & Badalyan, Lusine, 2024. "Political consequences of (consumer) debt relief," ZEW Discussion Papers 24-030, ZEW - Leibniz Centre for European Economic Research.
    3. Can Sever & Emekcan Yucel, 2020. "Macroprudential Policy and Elections: What Matters? Abstract:," Working Papers 2020/01, Bogazici University, Department of Economics.
    4. Kukk, Merike & Levenko, Natalia, 2024. "Measuring the effects of borrower-based policies on new housing loans," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 666-684.
    5. Ofori-Sasu, Daniel & Agbloyor, Elikplimi Komla & Nsafoah, Dennis & Asongu, Simplice A., 2024. "Banking behaviour and political business cycle in Africa: The role of independent regulatory policies of the central bank," The Journal of Economic Asymmetries, Elsevier, vol. 29(C).
    6. Can Sever & Emekcan Yucel, 2021. "Electoral Cycles in Inequality Abstract:," Working Papers 2021/01, Bogazici University, Department of Economics.
    7. Zuzana Fungáčová & Alexei Karas & Laura Solanko & Laurent Weill, 2023. "The politics of bank failures in Russia," Post-Soviet Affairs, Taylor & Francis Journals, vol. 39(6), pages 440-461, November.
    8. Florian Léon & Laurent Weill, 2024. "Elections hinder firms' access to credit," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(1), pages 73-107, January.
    9. Emilian DOBRESCU, 2021. "Potential Output: A Market Conditionalities Interpretation," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 5-38, December.
    10. Zekai Shen & Yiyang Jin & Yuanyuan Dong & Yazhou Liu, 2024. "Economic voting behavior: The peak‐end growth rule," Economics and Politics, Wiley Blackwell, vol. 36(3), pages 1537-1571, November.
    11. Gáspár, Attila & Sandström, Alexandra & Watson, Taylor & Wochner, Timo, 2025. "Electoral Cycles in Macroprudential Regulation - A Replication of Müller (2023)," I4R Discussion Paper Series 204, The Institute for Replication (I4R).
    12. Can Sever & Emekcan Yücel, 2025. "Electoral cycles in inequality," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 23(2), pages 433-456, June.
    13. Almasi, Pooya & Dagher, Jihad & Prato, Carlo, 2025. "Financial regulatory cycles: A political economy model," Journal of Financial Intermediation, Elsevier, vol. 63(C).
    14. Hülsewig, Oliver & Steinbach, Armin, 2024. "Banking Regulation and Sovereign Default Risk: How Regulation Undermines Rules," HEC Research Papers Series 1526, HEC Paris.
    15. Jbir, Hamdi, 2024. "Impact of monetary and macroprudential policy shocks on systemic risk: what role for the central bank governance ?," MPRA Paper 125437, University Library of Munich, Germany, revised 2025.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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