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Rational Partisan Theory with fiscal policy and an independent central bank

  • Ferré Carracedo, Montserrat
  • Manzano, Carolina

The empirical evidence testing the validity of the rational partisan theory (RPT) has been mixed. In this article, we argue that the inclusion of other macroeconomic policies and the presence of an independent central bank can partly contribute to explain this inconclusiveness. This article expands Alesina s (1987) RPT model to include an extra policy and an independent central bank. With these extensions, the implications of RPT are altered signi ficantly. In particular, when the central bank is more concerned about output than public spending (an assumption made by many papers in this literature), then the direct relationship between in flation and output derived in Alesina (1987) never holds. Keywords: central bank, conservativeness, political uncertainty. JEL Classi fication: E58, E63.

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File URL: http://hdl.handle.net/2072/211881
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Paper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/211881.

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Date of creation: 2013
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Handle: RePEc:urv:wpaper:2072/211881
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  1. Alesina, Alberto F & Roubini, Nouriel, 1990. "Political Cycles in OECD Economies," CEPR Discussion Papers 470, C.E.P.R. Discussion Papers.
  2. Alex Cukierman, 2006. "Central Bank Independence and Monetary Policymaking Institutions: Past, Present, and Future," Working Papers Central Bank of Chile 360, Central Bank of Chile.
  3. Beetsma Roel M.W.J. & Bovenberg A. Lans, 1995. "Monetary union without fiscal coordination may discipline policymakers," Research Memorandum 024, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 38, pages 195-225.
  5. Christopher Crowe & Ellen E. Meade, 2007. "The Evolution of Central Bank Governance around the World," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 69-90, Fall.
  6. Cameron Shelton, 2012. "The information content of elections and varieties of the partisan political business cycle," Public Choice, Springer, vol. 150(1), pages 209-240, January.
  7. Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Monetary union without fiscal coordination may discipline policymakers," Discussion Paper 1995-59, Tilburg University, Center for Economic Research.
  8. Jon Faust & John Irons, 1996. "Money, politics and the post-war business cycle," International Finance Discussion Papers 572, Board of Governors of the Federal Reserve System (U.S.).
  9. John Maloney & Andrew C. Pickering & Kaddour Hadri, 2003. "Political Business Cycles and Central Bank Independence," Economic Journal, Royal Economic Society, vol. 113(486), pages C167-C181, March.
  10. Montserrat Ferre & Carolina Manzano, 2012. "Designing the optimal conservativeness of the central bank," Economics Bulletin, AccessEcon, vol. 32(2), pages 1461-1473.
  11. Alberto Alesina & Nouriel Roubini & Gerald D. Cohen, 1997. "Political Cycles and the Macroeconomy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510944, June.
  12. Faust, Jon & Irons, John S., 1999. "Money, politics and the post-war business cycle," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 61-89, February.
  13. Fredrik Carlsen & Elin F. Pedersen, 1999. "Rational Partisan Theory: Evidence for Seven OECD Economies," Economics and Politics, Wiley Blackwell, vol. 11(1), pages 13-32, 03.
  14. Roubini, Nouriel & Alesina, Alberto, 1992. "Political Cycles in OECD Economies," Scholarly Articles 4553025, Harvard University Department of Economics.
  15. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
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