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Political Business Cycles in EU Accession Countries

Author

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  • Mark Hallerberg

    (University of Pittsburgh, USA hallerb@pitt.edu)

  • Lúcio Vinhas de Souza

    (ECARES, Université Libre de Bruxelles, Belgium and Tinbergen Institute, Erasmus University, The Netherlands desouza@few.eur.nl)

  • William Roberts Clark

    (New York University, USA william.clark@nyu.edu)

Abstract

This paper considers whether political business cycles existed in East European accession countries during the period 1990-9. Based on the Mundell-Fleming model expanded in Clark and Hallerberg (2000), we argue that the type of exchange rate regime and the relative independence of the central bank affects the instruments governments use to influence the economy before elections. In our empirical analysis, we find that accession countries with dependent central banks and flexible exchange rates have looser monetary policies in electoral periods than in non-electoral periods. If a country has a fixed exchange rate regime, it manipulates its economy in election years through running larger budgets instead of through looser monetary policy. The presence of such cycles in Eastern Europe has implications for the introduction of the euro in EU accession countries.

Suggested Citation

  • Mark Hallerberg & Lúcio Vinhas de Souza & William Roberts Clark, 2002. "Political Business Cycles in EU Accession Countries," European Union Politics, , vol. 3(2), pages 231-250, June.
    • Handle: RePEc:sae:eeupol:v:3:y:2002:i:2:p:231-250
    DOI: 10.1177/1465116502003002005
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    References listed on IDEAS

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