Alpanda, Sami and Honig, Adam (2007): Political Monetary Cycles and a New de facto Ranking of Central Bank Independence.
Download (155kB) | Preview
This paper examines the extent to which monetary policy is manipulated for political purposes by testing for the presence of political monetary cycles between 1972 and 2001. This is the first study of its kind to include not only advanced countries but also a large sample of developing nations where these cycles are more likely to exist. We estimate panel regressions of a monetary policy indicator on an election dummy and control variables. We do not find evidence of political monetary cycles in advanced countries but find strong evidence in developing nations. Based on our results, we construct a new de facto ranking of central bank independence derived from the extent to which monetary policy varies with the election cycle. Our ranking of CBI is therefore based on the behavior of central banks during election cycles when their independence is likely to be challenged or their lack of independence is likely to be revealed. The ranking also avoids well-known problems with existing measures of central bank independence.
|Item Type:||MPRA Paper|
|Original Title:||Political Monetary Cycles and a New de facto Ranking of Central Bank Independence|
|Keywords:||Political monetary cycles; central bank independence|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
|Depositing User:||Sami Alpanda|
|Date Deposited:||23. Nov 2007 06:08|
|Last Modified:||13. Feb 2013 09:05|
Abrams, B. A., and P. Iossifov, 2006, “Does the Fed Contribute to a Political Business Cycle?” Public Choice, 129:3, 249-262.
Alesina, A., and L.H. Summers, 1993, “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence,” Journal of Money, Credit, and Banking, Vol. 25 No. 2, pp. 151–62.
Arnone, M., B. J. Laurens, and J.-F. Segalotto. 2006. “The Measurement of Central Bank Autonomy: Survey of Models, Indicators, and Empirical Evidence.” IMF Working Paper 227.
Arnone, M., B. J. Laurens, J.-F. Segalotto. And M. Sommer, 2007. “Central Bank Autonomy: Lessons from Global Trends.” IMF Working Paper 88.
Bade, R., and M. Parkin, 1977, “Central Bank Laws and Monetary Policies: A Preliminary Investigation,” (London, Ontario, Canada: University of Western Ontario).
Barro, Robert J., and David B. Gordon (1983). “A Positive Theory of Monetary Policy in a Natural Rate Model,” Journal of Political Economy, 91(4), 589-610.
Beck, Nathaniel, 1987, “Elections and the Fed: Is there a Political Business Cycle,” American Journal of Political Science, 31(1), pp. 194–216.
Blinder, Alan (1998). Central Banking in Theory and Practice, The MIT Press, Cambridge.
Calvo, Guillermo (1978). “On the Time Consistency of Optimal Policy in the Monetary Economy,” Econometrica, 46(6):1411-1428.
Calvo, G., and C. Reinhart, 2002, Fear of Floating, The Quarterly Journal of Economics 117, 379-408.
Clark, W.R., U.N. Reichert, S.L. Lomas and K.L. Parker , International and domestic constraints on political business cycles in OECD economies. International Organization 51 (1998), pp. 87–120.
Cukierman, A., S. Webb, and B. Neyapti. 1992. “Measuring The Independence of Central Banks 31 and Its Effect on Policy Outcomes.” World Bank Economic Review 6 (September): 353–98.
Eijffinger, S.C.W., and E. Schaling, 1993, “CB Autonomy in Twelve Industrial Countries,” Banca Nazionale del Lavoro Quarterly Review, Vol. 184, pp. 49–89.
Eijffinger, S.C.W., M. Van Rooij, and E. Schaling, 1996, “CB Autonomy: A Panel data Approach,” Public Choice, Vol. 89, pp. 163–82.
Fair, Ray, 1978, "The Effect of Economic Events on Votes for President," The Review of Economics and Statistics, 2:159-173.
Fischer, S. 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule." Journal of Political Economy, 85 (1): 191-205.
Gastil, Raymond D. and followers (1982—83 and other years). Freedom in the World, Westport CT, Greenwood Press.
Golden, D. G. and J. M. Poterba, 1980, “The Price of Popularity: The Political Business Cycle Re-examined,” American Journal of Political Science, 24, 696-714.
Grilli, V., D. Masciandaro, and G. Tabellini. 1991. “Political and Monetary Institutions and Public Financial Policies in The Industrial Countries.” Economic Policy 13: 341–92.
Grier, K. B., 1987, “Presidential Elections and Federal Reserve Policy: An Empirical Test,” Southern Economic Journal, 54, 475-96.
Haynes, S. E., and J. A. Stone, 1988, “Does the political business cycle dominate United States unemployment and inflation? In T. Willet, ed., Political business cycles: The economics and politics of stagflation. San Francisco: Pacific Institute.
Haynes, S. E., and J. A. Stone, 1989, “An Integrated Test for Electoral Cycles in the U.S. Economy,” Review of Economics and Statistics, 71:3, 426-34.
Jácome, L. I., and F. Vázquez. 2005. “Any Link between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean.” IMF Working paper 75.
Kydland, Finn., and Edward Prescott (1977). “Rules Rather than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy, 85 (3): 473-492.
Leertouwer, Erik, and Maier, Philipp, 2001, “Who Creates Political Business Cycles: Should Central Banks Be Blamed?” European Journal of Political Economy, 17(3), pp. 445-463.
McCallum, B. T., 1978, “The Political Business Cycle: An Empirical Test,” Southern Economic Journal, 44, 504-15.
Mishkin, F. (2004), “Can Inflation Targeting Work for Emerging Market Countries?” NBER Working Paper 10646.
Mishkin, F. and N. Westelius, 2006, “Inflation Band Targeting and Optimal Inflation Contracts,” NBER Working Paper 12384.
Nordhaus, W.D., 1975, The political business cycle. Review of Economic Studies 42, pp. 169–190.
Phelps, E. S. and J. B. Taylor, 1997. “Stabilizing Powers of Monetary Policy under Rational Expectations,” Journal of Political Economy, 85 (1): 163-190.
Reinhart, C. and K. Rogoff, 2003, The Modern History of Exchange Rate Arrangements: A Reinterpretation?, Quarterly Journal of Economics 119, 1-48.
Rogoff, K. 1990. Equilibrium Political Budget Cycles. The American Economic Review. 80 (1): 21-36.
Sturm, J., de Haan, J., 2001. Inflation in Developing Countries: Does Central Bank Independence Matter? New Evidence Based on a New Data Set. CCSO Quarterly Journal.