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Which Type of Central Bank Smooths the Political Business Cycle?

Author

Listed:
  • Maloney, John

    (University of Exeter)

  • Andrew Pickering

    (University of Bristol)

  • Kaddour Hadri

    (University of Liverpool)

Abstract

This paper develops a dynamic model of Rational Partisan Business Cycles, wherein wage contracts overlap elections and wage setters have to make a prediction about the election result. Uncertainty leads to pre- and post-election date output fluctuations. Election result probabilities are imputed and then used to construct variables in electoral uncertainty. Using data from 20 OECD countries over the period 1960-1998 left wing incumbents are found to increase output, but the increased expectation of a left wing regime reduces it. These political effects are found to be offset by Central Bank Independence and in particular, objective independence.

Suggested Citation

  • Maloney, John & Andrew Pickering & Kaddour Hadri, 2002. "Which Type of Central Bank Smooths the Political Business Cycle?," Royal Economic Society Annual Conference 2002 135, Royal Economic Society.
    • Handle: RePEc:ecj:ac2002:135
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    Cited by:

    1. John Maloney & Andrew C. Pickering & Kaddour Hadri, 2003. "Political Business Cycles and Central Bank Independence," Economic Journal, Royal Economic Society, vol. 113(486), pages 167-181, March.

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