Hostname: page-component-78c5997874-4rdpn Total loading time: 0 Render date: 2024-11-19T12:09:26.681Z Has data issue: false hasContentIssue false
  • English
  • Français

Partisan and Electoral Motivations and the Choice of Monetary Institutions Under Fully Mobile Capital

Published online by Cambridge University Press:  09 July 2003

William Roberts Clark
Get access

Abstract

Central bank independence and pegged exchange rates have each been viewed as solutions to the inflationary bias resulting from the time inconsistency of discretionary monetary policy. While it is obvious that a benevolent social planner would opt for such an institutional solution, it is less obvious that a real-world incumbent facing short-term partisan or electoral pressures would do so. In this article, I model the choice of monetary institutions from the standpoint of a survival-maximizing incumbent. It turns out that a wide range of survival-maximizing incumbents do best by forfeiting control over monetary policy. While political pressures do not, in general, discourage monetary commitments, they can influence the choice between fixed exchange rates and central bank independence. I highlight the importance of viewing fiscal policy and monetary policy as substitutes and identify the conditions under which survival-maximizing incumbents will view fixed exchange rates and central bank independence as substitutes. In so doing, I provide a framework for integrating other contributions to this volume.

Type
Research Article
Information
International Organization , Volume 56 , Issue 4 , Autumn 2002 , pp. 725 - 749
Copyright
Copyright © The IO Foundation 2002

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Asadurian, Tamar A. 2002. “Exchange Rate Commitments and the Role of Veto Players” Manuscript. Department of Politics, New York University.Google Scholar
Barro, Robert, and Gordon, David B.. 1983. Rules, Discretion, and Reputation in a Model of Monetary Policy. Journal of Monetary Economics 12 (1):101–21.CrossRefGoogle Scholar
Bernhard, William, and Leblang, David. 1999. Democratic Institutions and Exchange-Rate Commitments. International Organization 53 (1):71–97.Google Scholar
Bernhard, William, Broz, J. Lawrence, and Clark, William Roberts. 2002. The Political Economy of Monetary Institutions: An Introduction. International Organization 56 (4):693–723.CrossRefGoogle Scholar
Broz, J. Lawrence. 2002. Political System Transparency and Monetary Commitment Regimes. International Organization 56 (4):861–87.Google Scholar
Clark, William Roberts. Forthcoming. Capitalism, Not Globalism: Capital Mobility, Central Bank Independence, and the Political Control of the Economy. Ann Arbor: University of Michigan Press.CrossRefGoogle Scholar
Clark, William Roberts, and Hallerberg, Mark. 2000. Mobile Capital, Domestic Institutions, and Electorally-Induced Monetary and Fiscal Policy. American Political Science Review. 94 (2):323–46.CrossRefGoogle Scholar
Fleming, J. Marcus. 1962. Domestic Financial Policies Under Fixed and Floating Exchange Rates. IMF Staff Papers 3 (9):369–79.CrossRefGoogle Scholar
Frieden, Jeffry A. 1991. Invested Interests: The Politics of National Economic Policies in a World of Global Finance. International Organization 45 (4):425–51.CrossRefGoogle Scholar
Frieden, Jeffry A., Ghezzi, Pierro, and Stein, Ernesto, 2001. Politics and Exchange Rates: A Cross-country Approach. In The Currency Game: Exchange Rate Politics in Latin America, edited by Frieden, Jeffry and Stein, Ernesto, 21–64. Washington, D.C.: Inter-American Development Bank.Google Scholar
Giavazzi, Francesco, and Pagano, Marco. 1988. The Advantage of Tying One's Hands: EMS Discipline and Central Bank Credibility. European Economic Review 32 (5):1055–82.CrossRefGoogle Scholar
Hallerberg, Mark. 2002. Veto Players and the Choice of Monetary Institutions. International Organization 56 (4):775–802.Google Scholar
Hallerberg, Mark, de Souza, Lucios Vinhas, and Clark, William Roberts. 2002. Monetary and Fiscal Cycles in EU Accession Countries. European Union Politics 3 (2):231–50.CrossRefGoogle Scholar
Hibbs, Douglas A. Jr, 1977. Political Parties and Macroeconomic Policy. American Political Science Review 71 (4):1467–87.CrossRefGoogle Scholar
Jankowski, Richard, and Wlezien, Christopher. 1993. Substitutability and the Politics of Macroeconomic Policy. Journal of Politics 55 (4):1060–80.Google Scholar
Keefer, Philip, and Stasavage, David. 2001. Checks and Balances, Private Information, and the Credibility of Monetary Commitment. International Organization 56 (4):751–74.CrossRefGoogle Scholar
Kenen, Peter B. 1994. The International Economy. New York: Cambridge University Press.Google Scholar
Kydland, Finn E., and Prescott, Edward C.. 1977. Rules Rather Than Discretion: The Inconsistency of Optimal Plans. Journal of Political Economy 85 (3):473–86.CrossRefGoogle Scholar
Mundell, Robert A. 1962. The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability. IMF Staff Papers 9 (1):70–9.CrossRefGoogle Scholar
Mundell, Robert A. 1963. Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates. The Canadian Journal of Economics and Political Science 29 (4):475–85.CrossRefGoogle Scholar
Nordhaus, William D. 1975. The Political Business Cycle. Review of Economic Studies 42 (2):169–90.CrossRefGoogle Scholar
Rogoff, Kenneth. 1985. The Optimal Degree of Commitment to an Intermediate Monetary Target. Quarterly Journal of Economics 100 (4):1169–90.CrossRefGoogle Scholar
Walsh, Carl E. 1995. Optimal Contracts for Central Bankers. American Economic Review 85 (1):150–67.Google Scholar