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Who creates poltical business cycles? : (should central banks be blamed?)

  • Leertouwer, Erik
  • Maier, Philipp

    (Groningen University)

Little attention has been paid in most economic studies on political businesscycles to separate the effects of fiscal and monetary policy. We attempt to as-sess the effect of monetary policy in a panel model for 16 OECD countries.To answer the question whether central banks actively create political busi-ness cycles we focus on the short-term interest rate as a proxy for the use ofmonetary instruments. Our results indicate that central banks should not beblamed for creating political business cycles as we do not find any evidencefor cyclical behavior in the short-term interest rate. This conclusion holds nomatter whether central banks are independent or not or are constrained bythe exchange rate system in force.

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File URL: http://irs.ub.rug.nl/ppn/190630450
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Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 99E56.

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Date of creation: 1999
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Handle: RePEc:dgr:rugsom:99e56
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  1. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
  2. Goodhart, Charles A E, 1994. "What Should Central Banks Do? What Should Be Their Macroeconomic Objectives and Operations?," Economic Journal, Royal Economic Society, vol. 104(427), pages 1424-36, November.
  3. Berger, Helge & Woitek, Ulrich, 1997. " Searching for Political Business Cycles in Germany," Public Choice, Springer, vol. 91(2), pages 179-97, April.
  4. Eijffinger, S. & De Hann, J., 1995. "The Political Economy of Central Bank Independence," Papers 9587, Tilburg - Center for Economic Research.
  5. Alesina, Alberto F & Roubini, Nouriel, 1990. "Political Cycles in OECD Economies," CEPR Discussion Papers 470, C.E.P.R. Discussion Papers.
  6. Allen, Stuart D. & McCrickard, Donald L., 1991. "The influence of elections on federal reserve behavior," Economics Letters, Elsevier, vol. 37(1), pages 51-55, September.
  7. Ito, Takatoshi & Park, Jin Hyuk, 1988. "Political business cycles in the parliamentary system," Economics Letters, Elsevier, vol. 27(3), pages 233-238.
  8. Pierre L. Siklos, 1994. "Varieties of Monetary Reforms," IMF Working Papers 94/57, International Monetary Fund.
  9. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  10. Clark, William Roberts & Reichert, Usha Nair & Lomas, Sandra Lynn & Parker, Kevin L., 1998. "International and Domestic Constraints on Political Business Cycles in OECD Economies," International Organization, Cambridge University Press, vol. 52(01), pages 87-120, December.
  11. Roubini, Nouriel & Alesina, Alberto, 1992. "Political Cycles in OECD Economies," Scholarly Articles 4553025, Harvard University Department of Economics.
  12. Posen, Adam, 1998. "Central Bank Independence and Disinflationary Credibility: A Missing Link?," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 335-59, July.
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