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Political support for anti-inflationary monetary policy

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Author Info

  • Debora Di Gioacchino

    (University of Rome 'La Sapienza', Italy)

  • Sergio Ginebri

    (University of Molise, Italy)

  • Laura Sabani

    (University of Florence, Italy)

Abstract

We model a two-party representative democracy with citizen-candidate in which the leader is elected while the central-banker is appointed by the leader. Assuming that fiscal policy is 'more important' than monetary policy, we show that, if some individuals who dislike inflation get organized in a lobby and offer campaign contribution to the party that proposes a zero-inflation policy, then even if the majority of the population, as well as the majority of party-members, favour inflation, no inflation results in equilibrium. The paper provides a political economy explanation of the role played by financial interest groups in providing political support to anti-inflationary monetary policy. Copyright © 2004 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 9 (2004)
Issue (Month): 2 ()
Pages: 187-200

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Handle: RePEc:ijf:ijfiec:v:9:y:2004:i:2:p:187-200

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References

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  1. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc.
  2. Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 114(4), pages 810-833, December.
  3. Tim Besley & Stephen Coate, . "An Economic Model of Representative Democracy," Penn CARESS Working Papers ecf70d639d700dba5327ab0c8, Penn Economics Department.
  4. Torsten Persson & Guido Tabellini, . "Political Economics and Macroeconomic Policy," Working Papers 121, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  6. Christian Schultz, . "Monetary Policy, Delegation and Polarization," EPRU Working Paper Series 98-19, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  7. Piga, Gustavo, 2000. " Dependent and Accountable: Evidence from the Modern Theory of Central Banking," Journal of Economic Surveys, Wiley Blackwell, vol. 14(5), pages 563-95, December.
  8. Eijffinger, S-C-W & de Haan, J, 1996. "The Political Economy of Central-Bank Independence," Princeton Studies in International Economics 19, International Economics Section, Departement of Economics Princeton University,.
  9. Herrendorf, Berthold & Neumann, Manfred J.M., 1998. "The Political Economy of Inflation and Central Bank Independence," CEPR Discussion Papers 1787, C.E.P.R. Discussion Papers.
  10. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  11. Timothy Besley & Stephen Coate, 2000. "Issue Unbundling via Citizens' Initiatives," NBER Working Papers 8036, National Bureau of Economic Research, Inc.
  12. Miller, Geoffrey P, 1998. "An Interest-Group Theory of Central Bank Independence," The Journal of Legal Studies, University of Chicago Press, vol. 27(2), pages 433-53, June.
  13. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
  14. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
  15. Waller, Christopher J, 1992. "The Choice of a Conservative Central Banker in a Multisector Economy," American Economic Review, American Economic Association, vol. 82(4), pages 1006-12, September.
  16. Adam S. Posen, 1995. "Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 253-274 National Bureau of Economic Research, Inc.
  17. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  18. Jon Faust, 1992. "Whom can we trust to run the Fed? Theoretical support for the founders' views," International Finance Discussion Papers 429, Board of Governors of the Federal Reserve System (U.S.).
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Citations

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Cited by:
  1. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2005. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Macroeconomics 0504024, EconWPA.
  2. Debora Di Gioacchino & Sergio Ginebri & Laura Sabani, 2003. "The Political Power of the Owners of Public Debt," Rivista di Politica Economica, SIPI Spa, vol. 93(1), pages 79-118, January-F.
  3. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2004. "Fiscal- Monetary Policy and Debt Management: a Two Stage Dynamic Analysis," Working Papers 74, University of Rome La Sapienza, Department of Public Economics.
  4. Di Gioacchino, Debora & Ginebri, Sergio & Sabani, Laura, 2005. "Inequality, redistribution and the allocation of public spending in education. A political-economy approach," Economics & Statistics Discussion Papers esdp05024, University of Molise, Dept. EGSeI.

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