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Monetary Policy, Delegation and Polarisation


  • Schultz, Christian


This paper studies the relation between political polarization and delegation of stabilization policy. There is asymmetric information about how the economy works: unlike voters, two political parties know the variance of an employment shock. Prior to an election, each party proposes a central banker to be chosen if the party wins. If political polarization is small, voters will learn the true variance and the central banker and the stabilization policy are the ones most preferred by the median voter. If the political polarization is high, stabilization policy does not reflect the variance but only the preferences of the winning party.

Suggested Citation

  • Schultz, Christian, 1999. "Monetary Policy, Delegation and Polarisation," Economic Journal, Royal Economic Society, vol. 109(455), pages 164-178, April.
  • Handle: RePEc:ecj:econjl:v:109:y:1999:i:455:p:164-78

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    References listed on IDEAS

    1. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    2. Lawrence F. Katz & Alan B. Krueger, 1992. "The Effect of the Minimum Wage on the Fast-Food Industry," ILR Review, Cornell University, ILR School, vol. 46(1), pages 6-21, October.
    3. Stephen Machin & Alan Manning, 1992. "Minimum Wages," CEP Discussion Papers dp0080, Centre for Economic Performance, LSE.
    4. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," ILR Review, Cornell University, ILR School, vol. 46(1), pages 22-37, October.
    5. David Card & Alan B. Krueger, 1997. "A Reanalysis of the Effect of the New Jersey Minimum Wage Increase on the Fast-Food Industry with Representative Payroll Data," Working Papers 772, Princeton University, Department of Economics, Industrial Relations Section..
    6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    7. David Neumark & William Wascher, 1993. "Employment effects of minimum and subminimum wages: reply to Card, Katz, and Krueger," Working Paper Series / Economic Activity Section 144, Board of Governors of the Federal Reserve System (U.S.).
    8. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-273, May.
    9. Alan Manning, 1995. "How Do We Know That Real Wages Are Too High?," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1111-1125.
    10. Rebitzer, James B. & Taylor, Lowell J., 1995. "The consequences of minimum wage laws Some new theoretical ideas," Journal of Public Economics, Elsevier, vol. 56(2), pages 245-255, February.
    11. William M. Boal & Michael R. Ransom, 1997. "Monopsony in the Labor Market," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 86-112, March.
    12. David Neumark & William Wascher, 1995. "The Effect of New Jersey's Minimum Wage Increase on Fast-Food Employment: A Re-Evaluation Using Payroll Records," NBER Working Papers 5224, National Bureau of Economic Research, Inc.
    13. repec:fth:prinin:300 is not listed on IDEAS
    14. Alan B. Krueger, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 75-101.
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    Cited by:

    1. Philipp an de Meulen & Christian Bredemeier, 2012. "A Political Winner’s Curse: Why Preventive Policies Pass Parliament so Narrowly," Ruhr Economic Papers 0336, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. repec:zbw:rwirep:0336 is not listed on IDEAS
    3. Silvia Dominguez-Martinez & Otto Swank, 2006. "Polarization, Information Collection and Electoral Control," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 26(3), pages 527-545, June.
    4. Gianmaria Martini & Cinzia Rovesti, 2004. "Antitrust policy and price collusion. Public agencies vs delegation," Recherches économiques de Louvain, De Boeck Université, vol. 70(2), pages 127-151.
    5. Thomas Jensen, 2013. "Elections, Information, and State-Dependent Candidate Quality," Discussion Papers 13-03, University of Copenhagen. Department of Economics.
    6. Bohn, Frank, 2002. "Public Finance under Political Instability and Debt Conditionality," Economics Discussion Papers 8843, University of Essex, Department of Economics.
    7. Schultz, Christian, 2002. "Policy biases with voters' uncertainty about the economy and the government," European Economic Review, Elsevier, vol. 46(3), pages 487-506, March.
    8. Heidhues, Paul & Lagerlof, Johan, 2003. "Hiding information in electoral competition," Games and Economic Behavior, Elsevier, vol. 42(1), pages 48-74, January.
    9. an de Meulen, Philipp & Bredemeier, Christian, 2012. "A Political Winner's Curse: Why Preventive Policies Pass Parliament so Narrowly," Ruhr Economic Papers 336, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    10. Thomas Jensen, 2015. "Elections, Information, and State-Dependent Candidate Quality," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(5), pages 702-723, October.
    11. Debora Di Gioacchino & Sergio Ginebri & Laura Sabani, 2004. "Political support for anti-inflationary monetary policy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 187-200.
    12. Bohn, Frank, 2002. "Eliminating the Inflationary Finance Trap in a Politically Unstable Country: Domestic Politics versus International Pressure," Economics Discussion Papers 8853, University of Essex, Department of Economics.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies


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