IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

The Disadvantage of Tying Their Hands: On the Political Economy of Policy Commitments

Listed author(s):
  • G Milesi-Feretti
Registered author(s):

    Incumbents are more likely to be re-elected if they have a comparative advantage in the eyes of voters on some central issue. This paper argues that incumbents have an incentive to avoid reforms that reduce the government's role in deciding these issues, in order to increase their chances of re-election. This point is illustrated in the context of the choice of an exchange-rate regime in an economy characterized by an "inflation bias". A flexible exchange rate allows the government to use monetary policy as a stabilization tool, while fixed exchange rates remove the "inflation bias" of the economy. On the one hand, it is shown that a more inflation-averse government may refrain from choosing fixed exchange rates in order to capitalize on the "inflationary" reputation of its opponent. This incentive is contrasted with the opposite incentive to "tie the hands" of the future government should be incumbent be defeated. On the other hand, it is shown that electoral considerations may reinforce the incentive of the more "inflationary" government to "tie its own hands" with fixed exchange rates.

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0125.

    in new window

    Date of creation: Mar 1993
    Handle: RePEc:cep:cepdps:dp0125
    Contact details of provider: Web page:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp0125. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.