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The New Political Macroeconomics

Author

Listed:
  • Ali al-Nowaihi
  • Dean Garratt

Abstract

The paper surveys the ‘old’ and ‘new’ political macroeconomics. In the former we consider how governments can be seen to manipulate the economy as to satisfy opportunistic or ideological motives, thereby creating opportunistic or partisan political business cycles. We examine how the macroeconomic revolution of the 1970s cast doubts on the ability of governments to freely and repeatedly create such cycles. Consequently, the new political macroeconomics have focused more on the effect of politically induced incentives on the inherent amount of inflation in the economic system. In exploring the concept of inflation bias we attempt to use ideas from the old political macroeconomics to show how the two strands of literature may complement one another. The paper finishes by focusing on the debate within the new political macroeconomics about the possible trade-off between reduced inflation bias and extra output volatility following the establishment of an independent central bank.

Suggested Citation

  • Ali al-Nowaihi & Dean Garratt, 1998. "The New Political Macroeconomics," Discussion Papers in Economics 98/05, Division of Economics, School of Business, University of Leicester.
    • Handle: RePEc:lec:leecon:98/5
    as

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    File URL: https://www.le.ac.uk/economics/research/RePEc/lec/leecon/econ98-5.pdf
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    References listed on IDEAS

    as
    1. al-Nowaihi, Ali & Levine, Paul, 1998. "Can political monetary cycles be avoided?," Journal of Monetary Economics, Elsevier, vol. 42(3), pages 525-545, October.
    2. Al-Nowaihi, A & Levine, Paul L, 1996. "Independent but Accountable: Walsh Contracts and the Credibility Problem," CEPR Discussion Papers 1387, C.E.P.R. Discussion Papers.
    3. al-Nowaihi, Ali & Levine, Paul, 1994. "Can reputation resolve the monetary policy credibility problem?," Journal of Monetary Economics, Elsevier, vol. 33(2), pages 355-380, April.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Gartner, Manfred, 2000. "Political Macroeconomics: A Survey of Recent Developments," Journal of Economic Surveys, Wiley Blackwell, vol. 14(5), pages 527-561, December.
    2. Koen Schoors & Konstantin Sonin, 2005. "Passive Creditors," International Finance, Wiley Blackwell, vol. 8(1), pages 57-86, March.
    3. Akhmedov Akhmed, 2006. "Human Capital and Political Business Cycles," EERC Working Paper Series 06-02e, EERC Research Network, Russia and CIS.
    4. Akhmed Akhmedov, 2006. "Human Capital and Political Business Cycles," Working Papers w0087, Center for Economic and Financial Research (CEFIR).
    5. Fi̇li̇z Eryilmaz & Mehmet Mercan, 2015. "Political Budget Cycles: Evidence From Turkey," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 5-14, April.
    6. Akhmed Akhmedov, 2006. "Human Capital and Political Business Cycles," Working Papers w0087, New Economic School (NES).

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    More about this item

    Keywords

    Political business cycles; time inconsistency; inflation bias; central bankers;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H10 - Public Economics - - Structure and Scope of Government - - - General

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