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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)

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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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File URL: http://hdl.handle.net/10.1002/ijfe.241
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Publisher 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 listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
  2. Persson, Torsten & Tabellini, Guido, 1997. "Political Economics and Macroeconomic Policy," CEPR Discussion Papers 1759, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. 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.). [Downloadable!]
  4. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
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  7. Piga, Gustavo, 2000. " Dependent and Accountable: Evidence from the Modern Theory of Central Banking," Journal of Economic Surveys, Blackwell Publishing, vol. 14(5), pages 563-95, December. [Downloadable!] (restricted)
  8. Timothy Besley & Stephen Coate, 2000. "Issue Unbundling via Citizens' Initiatives," NBER Working Papers 8036, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
  12. Stanley Fischer & Franco Modigliani, 1980. "Towards An Understanding of the Real Effects and Costs of Inflation," NBER Working Papers 0303, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Schultz, Christian, 1999. "Monetary Policy, Delegation and Polarisation," Economic Journal, Royal Economic Society, vol. 109(455), pages 164-78, April. [Downloadable!] (restricted)
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  14. Miller, Geoffrey P, 1998. "An Interest-Group Theory of Central Bank Independence," Journal of Legal Studies, University of Chicago Press, vol. 27(2), pages 433-53, June.
  15. 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,.
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  16. Besley, Timothy & Coate, Stephen, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 85-114, February.
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  17. 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. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2005. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Macroeconomics 0504024, EconWPA. [Downloadable!]
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  2. 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. SEGeS. [Downloadable!]
  3. Di Gioacchino, Debora & Ginebri, Sergio & Sabani, Laura, 2003. "The Political Power of the Owners of Public Debt," Economics & Statistics Discussion Papers esdp03006, University of Molise, Dept. SEGeS. [Downloadable!]
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