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Rational Partisan Theory with fiscal policy and an independent central bank

Listed author(s):
  • 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
Handle: RePEc:urv:wpaper:2072/211881
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  1. Cukierman, Alex, 2008. "Central bank independence and monetary policymaking institutions -- Past, present and future," European Journal of Political Economy, Elsevier, vol. 24(4), pages 722-736, December.
  2. Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Monetary Union without Fiscal Coordination May Discipline Policymakers," DELTA Working Papers 95-22, DELTA (Ecole normale supérieure).
  3. Demertzis, Maria, 2004. "Central Bank independence: Low inflation at no cost? A numerical simulations exercise," Journal of Macroeconomics, Elsevier, vol. 26(4), pages 661-677, December.
  4. Roubini, Nouriel & Alesina, Alberto, 1992. "Political Cycles in OECD Economies," Scholarly Articles 4553025, Harvard University Department of Economics.
  5. Beetsma, Roel & Bovenberg, A Lans, 1998. "The Optimality of a Monetary Union Without a Fiscal Union," CEPR Discussion Papers 1975, C.E.P.R. Discussion Papers.
  6. Ferré Carracedo, Montserrat & Manzano, Carolina, 2011. "Designing the Optimal Conservativeness of the Central Bank," Working Papers 2072/179623, Universitat Rovira i Virgili, Department of Economics.
  7. 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.
  8. Alesina, Alberto & Stella, Andrea, 2010. "The Politics of Monetary Policy," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 18, pages 1001-1054 Elsevier.
  9. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  10. Alesina, Alberto & Gatti, Roberta, 1995. "Independent Central Banks: Low Inflation at No Cost?," American Economic Review, American Economic Association, vol. 85(2), pages 196-200, May.
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  13. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-630, October.
  14. Michael Berlemann & Gunther Markwardt, 2007. "Unemployment and Inflation Consequences of Unexpected Election Results," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1919-1945, December.
  15. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Working Papers in Applied Economic Theory 94-05, Federal Reserve Bank of San Francisco.
  16. 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.
  17. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
  18. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
  19. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
  20. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  21. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
  22. Avinash Dixit & Luisa Lambertini, 2003. "Interactions of Commitment and Discretion in Monetary and Fiscal Policies," American Economic Review, American Economic Association, vol. 93(5), pages 1522-1542, December.
  23. 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.
  24. Alberto Alesina & Nouriel Roubini, 1992. "Political Cycles in OECD Economies," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 663-688.
  25. Jon Faust & John S. 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.).
  26. David Kiefer, 2000. "Activist Macroeconomic Policy, Election Effects and the Formation of Expectations: Evidence from OECD Economies," Economics and Politics, Wiley Blackwell, vol. 12(2), pages 137-154, 07.
  27. 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.
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