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

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.