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Which Type of Central Bank Smooths the Political Business Cycle?

Listed author(s):
  • Maloney, John

    (University of Exeter)

  • Andrew Pickering

    (University of Bristol)

  • Kaddour Hadri

    (University of Liverpool)

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.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 135.

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Date of creation: 29 Aug 2002
Handle: RePEc:ecj:ac2002:135
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