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Public Inflation Aversion and the Political Economy of Macroeconomic Policymaking

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  • Scheve, Kenneth
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    Abstract

    Do the macroeconomic priorities of citizens differ across countries? If so, what accounts for this variation and what are its consequences for explanations of the choice of monetary institutions, macroeconomic policy, and international monetary cooperation? This article uses survey data from twenty advanced economies to examine individual preferences about macroeconomic priorities. The analysis establishes three key findings. First, the results suggest that economic context, defined by inflation and unemployment performance, has a substantial impact on the public s economic objectives in a way that is broadly consistent with the specification of utility loss functions in the theoretical political economy literature. Second, the results suggest that there is significant cross-country variation in inflation aversion, controlling for economic context. Third, some of this variation is accounted for by national-level factors affecting the aggregate costs of inflation and unemployment. These results have significant implications for optimal monetary policymaking, the explanation of variation in economic outcomes, and for accounts of the choice of institutional frameworks for policymaking.I thank the Bank of England, the Center for Basic Research in the Social Sciences, and the Institution for Social and Policy Studies for research support, and Jim Alt, Andrew Bailey, Bill Bernhard, Lawrence Broz, John Freeman, Jeff Frieden, Jim Granato, Shigeo Hirano, David Lake, Jeff Lax, Simon Price, Rose Razaghian, Ron Rogowski, David Stasavage, Gabriel Sterne, Mike Tomz, Jim Vreeland, the editor, and two anonymous reviewers for helpful comments. All views expressed are those of the author and do not represent those of the Bank of England.

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    Bibliographic Info

    Article provided by Cambridge University Press in its journal International Organization.

    Volume (Year): 58 (2004)
    Issue (Month): 01 (February)
    Pages: 1-34

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    Handle: RePEc:cup:intorg:v:58:y:2004:i:01:p:1-34_58

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    Cited by:
    1. Farvaque, Etienne & Mihailov, Alexander, 2009. "Intergenerational Transmission of Inflation Aversion: Theory and Evidence," IRISS Working Paper Series 2009-11, IRISS at CEPS/INSTEAD.
    2. Heinemann, Friedrich & Osterloh, Steffen & Kalb, Alexander, 2014. "Sovereign risk premia: The link between fiscal rules and stability culture," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 110-127.
    3. Ehrmann, Michael & Tzamourani, Panagiota, 2009. "Memories of high inflation," Working Paper Series 1095, European Central Bank.
    4. Muhammad Azmat Hayat & Etienne Farvaque, 2012. "Public Attitudes towards Central Bank Independence: Lessons From the Foundation of the ECB," Working Papers hal-00988169, HAL.
    5. Kim, Iljoong & Kim, Inbae, 2008. "Interest group pressure explanations for the yen-dollar exchange rate movements: Focusing on the 1980s," Journal of the Japanese and International Economies, Elsevier, vol. 22(3), pages 364-382, September.
    6. repec:old:wpaper:343 is not listed on IDEAS
    7. Matthias Neuenkirch, 2013. "Are Public Preferences Reflected in Monetary Policy Reaction Functions?," MAGKS Papers on Economics 201321, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    8. Sousa, Pedro, 2009. "Do ECB Council Decisions represent always a Real Euro Consensus?," Working Papers 9/2009, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).
    9. Heinz Welsch & Jan Kühling, 2011. "Anti-Inflation Policy Benefits the Poor: Evidence from Subjective Well-Being Data," Working Papers V-343-11, University of Oldenburg, Department of Economics, revised Dec 2011.
    10. Dreher, Axel & Sturm, Jan-Egbert & Haan, Jakob de, 2010. "When is a central bank governor replaced? Evidence based on a new data set," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 766-781, September.
    11. Michael Berlemann & Sören Enkelmann, 2013. "Die „German Angst“ – Inflationsaversion in Ost- und Westdeutschland," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, vol. 20(02), pages 03-09, 04.

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