Do political commentaries command? The case of the Central Bank of Brazil

ABSTRACT This paper investigates whether political pressure affects the conduct of monetary policy in Brazil. For the period between January 2010 and August 2020, we estimate a modified Taylor rule to empirically test whether the calls for lower interest rates by presidents induce Central Bank of Brazil (BCB) to lower the policy rate. We document that BCB is more likely to set the policy rate in line with the preferences of political leaders. We also show that the response of BCB to political pressure remained significant even though political pressure diminished in recent years.