Hostname: page-component-cd9895bd7-jn8rn Total loading time: 0 Render date: 2024-12-27T07:58:14.793Z Has data issue: false hasContentIssue false
  • English
  • Français

The Political Economy of Monetary Institutions

Published online by Cambridge University Press:  09 July 2003

William Bernhard ,
J. Lawrence Broz  and
William Roberts Clark
Get access

Abstract

In recent decades, countries have experimented with a variety of monetary institutions, including alternative exchange-rate arrangements and different levels of central bank independence. Political economists have analyzed the choice of these institutions, emphasizing their role in resolving both the time-inconsistency problem and dilemmas created by an open economy. This “first-generation” work, however, suffers from a central limitation: it studies exchange-rate regimes and central bank institutions in isolation from one another without investigating how one monetary institution affects the costs and benefits of the other. By contrast, the contributors to this volume analyze the choice of exchange-rate regime and central bank independence together and, in so doing, present a “second generation” of research on the determinants of monetary institutions. The articles incorporate both economic and political factors in explaining the choice of monetary institutions, investigating how political institutions, democratic processes, political party competition, and interest group pressures affect the balance between economic and distributional policy objectives.

Type
Research Article
Information
International Organization , Volume 56 , Issue 4 , Autumn 2002 , pp. 693 - 723
Copyright
Copyright © The IO Foundation 2002

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alesina, Alberto. 1987. Macroeconomic Policy in a Two-Party System as a Repeated Game. Quarterly Journal of Economics 102 (3):651–78.CrossRefGoogle Scholar
Alesina, Alberto. 1988. Macroeconomics and Politics. In NBER Macroeconomics Annual, vol. 3, 13–52. Cambridge, Mass.: NBER and MIT Press.Google Scholar
Alesina, Alberto, and Sachs, Jeffrey. 1988. Political Parties and the Business Cycle in the United States. Journal of Money, Credit, and Banking 20 (1):63–82.CrossRefGoogle Scholar
Alesina, Alberto, and Summers, Lawrence. 1993. Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence. Journal of Money, Credit, and Banking 25 (2):151–62.CrossRefGoogle Scholar
Barro, Robert, and Gordon, David B.. 1983. Rules, Discretion, and Reputation in a Model of Monetary Policy. Journal of Monetary Economics 12 (1):101–21.CrossRefGoogle Scholar
Bernhard, William. 1998. A Political Explanation of Variations in Central Bank Independence. American Political Science Review 92 (2):311–28.CrossRefGoogle Scholar
Bernhard, William. 2002. Banking on Reform: Political Parties and Central Bank Independence in the Industrial Democracies. Ann Arbor: University of Michigan Press.CrossRefGoogle Scholar
Bernhard, William, and Leblang, David. 1999. Democratic Institutions and Exchange-Rate Commitments. International Organization 53 (1):71–97.CrossRefGoogle Scholar
Bernhard, William, and Leblang, David. 2002. Political Parties and Monetary Commitments. International Organization 56 (4):803–30.CrossRefGoogle Scholar
Boylan, Delia M. 1998. Preemptive Strike: Central Bank Reform in Chile's Transition from Authoritarian Rule. Comparative Politics 30 (4):443–62.CrossRefGoogle Scholar
Boylan, Delia M. 2001. Defusing Democracy: Central Bank Autonomy and the Transition from Authoritarian Rule. Ann Arbor: University of Michigan Press.CrossRefGoogle Scholar
Broz, J. Lawrence. 2002. Political System Transparency and Monetary Commitment Regimes. International Organization 56 (4):861–87.CrossRefGoogle Scholar
Broz, J. Lawrence, and Frieden, Jeffry A.. 2001. The Political Economy of International Monetary Relations. Annual Review of Political Science 4:317–43.CrossRefGoogle Scholar
Burdekin, Richard C. K., and Willett, Thomas D.. 1991. Central Bank Reform: The Federal Reserve in International Perspective. Public Budgeting and Financial Management 3 (3):619–49.Google Scholar
Calvo, Guillermo A., and Reinhart, Carmen M.. 2000. Fear of Floating. Unpublished manuscript. College Park, Md.: University of Maryland.CrossRefGoogle Scholar
Canavan, Chris, and Tommasi, Mariano. 1997. On the Credibility of Alternative Exchange-Rate Regimes. Journal of Developmental Economics 54 (1):101–22.CrossRefGoogle Scholar
Clark, William Roberts. 2002. Partisan and Electoral Motivations and the Choice of Monetary Institutions Under Fully Mobile Capital. International Organization 56 (4):725–49.CrossRefGoogle Scholar
Clark, William Roberts. Forthcoming. Capitalism, not Globalism: Capital Mobility, Central Bank Independence, and the Political Control of the Economy. Ann Arbor: University of Michigan Press.CrossRefGoogle Scholar
Clark, William Roberts, Reichert, Usha Nair, Lomas, Sandra Lynn, and Parker, Kevin L.. 1998. International and Domestic Constraints on Political Business Cycles in OECD Economies. International Organization 52 (1):87–120.CrossRefGoogle Scholar
Clark, William Roberts, and Hallerberg, Mark. 2000. Mobile Capital, Domestic Institutions, and Electorally Induced Monetary and Fiscal Policy. American Political Science Review 94 (2):323–46.CrossRefGoogle Scholar
Cukierman, Alex. 1992. Central Bank Strategy, Credibility and Independence: Theory and Evidence. Cambridge, Mass: MIT Press.Google Scholar
Cukierman, Alex. 1994. Commitment through Delegation, Political Influence, and Central Bank Independence. In A Framework for Monetary Stability: Paper and Proceedings of an International Conference Organised by De Nederlandsche Bank and the Center for Economic Research at Amsterdam, edited by De Beaufort Wijnholds, J. Onno, Effinger, Sylvester C. and Hoogduin, Lex H., 55–74. Dordrecht: Kluwer Academic Publishers.CrossRefGoogle Scholar
Cukierman, Alex, Webb, Steven B., and Neyapti, Bilin. 1992. Measuring the Independence of Central Banks and Its Effect on Policy Outcomes. World Bank Economic Review 6 (3):353–98.CrossRefGoogle Scholar
Cukierman, Alex, and Webb, Steven B.. 1995. Political Influence on the Central Bank: International Evidence. World Bank Economic Review 9 (3):397–423.CrossRefGoogle Scholar
Cukierman, Alex, Miller, Geoffrey P., and Neyapti, Bilin. 2001. Central Bank Reform, Liberalization and Inflation in Transition Economies - An International Perspective. Working Paper 19. Tel Aviv University: Foerder Institute for Economic Research.Google Scholar
de Haan, Jakob, and Kooi, Willem. 2000. Does Central Bank Independence Really Matter? New Evidence for Developing Countries Using a New Indicator. Journal of Banking and Finance 24 (4):646–64.Google Scholar
de Haan, Jakob, and Van 't Hag, Gert Jan. 1995. Variation in Central Bank Independence Across Countries: Some Provisional Empirical Evidence. Public Choice 85 (3–4):335–51.CrossRefGoogle Scholar
Debelle, Guy, and Fischer, Stanley. 1994. How Independent Should the Central Bank Be? In Goals, Guidelines, and Constraints Facing Monetary Policymakers, edited by Fuhrer, Jeffrey C., 195–221. Boston: Federal Reserve Bank of Boston.Google Scholar
Edwards, Sebastian, and Savastano, Miguel A.. 1999. Exchange Rates in Emerging Economies: What Do We Know? What Do We Need to Know? NBER Working Paper 7228. Cambridge, Mass.: National Bureau of Economic Research.CrossRefGoogle Scholar
Eichengreen, Barry. 1992. Should the Maastricht Treaty Be Saved? Princeton Studies in International Finance, No. 74. Princeton, N.J.: Princeton University.Google Scholar
Eichengreen, Barry. 1995. The Endogeneity of Exchange Rate Regimes: The Macroeconomics of the Open Economy. In Understanding Interdependence, edited by Kenen, Peter, 3–33. Princeton, N.J.: Princeton University Press.CrossRefGoogle Scholar
Eijffinger, S. C. W., and de Haan, Jakob. 1996. The Political Economy of Central Bank Independence. Special Papers in International Economics 19. Princeton, N.J.: Economics Department, Princeton University.Google Scholar
Flood, Robert P. and Isard, Peter. 1989. Monetary Policy Strategies. International Monetary Fund Staff Papers. 36 (3):612–32.CrossRefGoogle Scholar
Frankel, Jeffrey A. 1995. Monetary Regime Choice for a Semi-Open Economy. In Capital Controls, Exchange Rates and Monetary Policy in the World Economy, edited by Edwards, Sebastian, 35–69. New York: Cambridge University Press.CrossRefGoogle Scholar
Frankel, Jeffrey, Schmukler, Sergio, and Serven, Luis. 2000. Verifiability and the Vanishing Intermediate Exchange Rate Regime. NBER Working Paper 7901. Cambridge, Mass.: National Bureau of Economic Research.CrossRefGoogle Scholar
Franzese, Robert J. 1999. Partially Independent Central Banks, Politically Responsive Governments, and Inflation. American Journal of Political Science. 43 (3):889–910.CrossRefGoogle Scholar
Franzese, Robert J. 2002. Macroeconomic Policies of Developed Countries. New York: Cambridge University Press.CrossRefGoogle Scholar
Freeman, John. M. 2002. Competing Commitments: Technocracy and Democracy in the Design of Monetary Institutions. International Organization 56 (4):889–910.CrossRefGoogle Scholar
Frieden, Jeffry A. 1991. Invested Interests: The Politics of National Economic Policies in a World of Global Finance. International Organization 45 (4):425–51.CrossRefGoogle Scholar
Frieden, Jeffry A. 2002. Real Sources of European Currency Policy: Sectoral Interests and European Monetary Integration. International Organization 56 (4):831–60.CrossRefGoogle Scholar
Frieden, Jeffry A., Ghezzi, Pierro, and Stein, Ernesto, 2001. Politics and Exchange Rates: A Cross-country Approach. In The Currency Game: Exchange Rate Politics in Latin America, edited by Frieden, Jeffry and Stein, Ernesto, 21–64. Washington, D.C.: Inter-American Development Bank.Google Scholar
Garfinkel, Michelle R. 1989. What is the ‘Acceptable’ Rate of Inflation? Federal Reserve Bank of St. Louis Review 71 (4):3–15Google Scholar
Garrett, Geoffrey. 1995. Capital Mobility, Trade, and the Domestic Politics of Economic Policy. International Organization 49 (4):657–87.CrossRefGoogle Scholar
Ghosh, Atish R., Gulde, Anne-Marie, Ostry, Jonathan D., and Wolf, Holger C.. 1997. Does the Nominal Exchange Rate Regime Matter? NBER Working Paper 5874. Cambridge, Mass.: National Bureau of Economic Research.CrossRefGoogle Scholar
Giavazzi, Francesco, and Giovannini, Alberto. 1989. Limiting Exchange Rate Flexibility: The European Monetary System. Cambridge, Mass.: MIT Press.Google Scholar
Giavazzi, Francesco, and Pagano, Marco. 1988. The Advantage of Tying One's Hands: EMS Discipline and Central Bank Credibility. European Economic Review 32 (5):1055–82.CrossRefGoogle Scholar
Goodman, John B. 1991. The Politics of Central Bank Independence. Comparative Politics 23 (3):329–49.CrossRefGoogle Scholar
Grilli, Vittorio, Masciandaro, Donato, and Tabellini, Guido. 1991. Political and Monetary Institutions and Public Financial Policies in the Industrial Countries. Economic Policy 13 (October):342–92.Google Scholar
Hall, Peter A., and Franzese, Robert. 1998. Mixed Signals: Central Bank Independence, Coordinated Wage-Bargaining, and European Monetary Union. International Organization 52 (3):505–35.CrossRefGoogle Scholar
Hallerberg, Mark. 2002. Veto Players and the Choice of Monetary Institutions. International Organization 56 (4):775–802.CrossRefGoogle Scholar
Havrilesky, Thomas M. 1987. A Partisanship Theory of Fiscal and Monetary Regimes. Journal of Money, Credit, and Banking 19 (3):308–25.CrossRefGoogle Scholar
Hibbs, Douglas A. Jr, 1977. Political Parties and Macroeconornic Policy. American Political Science Review 71 (4):1467–87.CrossRefGoogle Scholar
Hibbs, Douglas A. Jr, 1985. Inflation, Political Support and Macroeconomic Policy. In The Politics Of Inflation And Economic Stagnation: Theoretical Approaches and International Case Studies, edited by Lindberg, Leon and Maier, Charles, 175–95. Washington, D.C.: Brookings Institution.Google Scholar
Hibbs, Douglas A. Jr, 1987. The Political Economy of Industrial Democracies. Cambridge, Mass: Harvard University Press.CrossRefGoogle Scholar
Hibbs, Douglas A. Jr, Rivers, R. Douglas, and Vasilatos, Nicholas. 1982. On the Demand for Macroeconomic Outcomes: Macroeconomic Performance and Mass Political Support in the United States, Great Britain and Germany. The Journal of Politics 44 (2):426–62.CrossRefGoogle Scholar
Issing, Otmar. 1993. Central Bank Independence and Monetary Stability. Occasional Paper 89. London: Institute of Economic Affairs.Google Scholar
Iversen, Torben. 1998. Wage Bargaining, Central Bank Independence, and the Real Effects of Money. International Organization 52 (3):469–504.CrossRefGoogle Scholar
Iversen, Torben. 1999. Contested Economic Institutions: The Politics of Macroeconomics and Wage Bargaining in Advanced Democracies. Cambridge: Cambridge University Press.Google Scholar
Keefer, Philip, and Stasavage, David. 2002. Checks and Balances, Private Information, and the Credibility of Monetary Commitments. International Organization 56 (4):751–74.CrossRefGoogle Scholar
Kenen, Peter. 1969. The Theory of Optimum Currency Areas. In Monetary Problems of the International Economy, edited by Mundell, Robert A. and Swoboda, Alexander K., 41–60. Chicago: University of Chicago Press.Google Scholar
Kydland, Finn E., and Prescott, Edward C.. 1977. Rules Rather Than Discretion: The Inconsistency of Optimal Plans. Journal of Political Economy 85 (3):473–86.CrossRefGoogle Scholar
Leblang, David. 1999. Democratic Political Institutions and Exchange Rate Commitments in the Developing World. International Studies Quarterly 43 (4):599–620.CrossRefGoogle Scholar
Lohmann, Susanne. 1992. Optimal Commitment in Monetary Policy: Credibility Versus Flexibility. American Economic Review 82 (1):273–86.Google Scholar
Lohmann, Susanne. 1994. Designing a Central Bank in a Federal System: The Deutsche Bundesbank, 1957–1992. In Varieties of Monetary Reforms: Lessons and Experiences on the Road to Monetary Union, edited by Siklos, Pierre, 247–78. Boston: Kluwer Academic Press.CrossRefGoogle Scholar
Lohmann, Susanne. 1998. Federalism and Central Bank Independence: The Politics of German Monetary Policy, 1957–92. World Politics 50 (3):401–46.CrossRefGoogle Scholar
Maxfield, Sylvia. 1997. Gatekeepers of Growth: The International Political Economy of Central Banking in Developing Countries. Princeton, N.J.: Princeton University Press.Google Scholar
McCubbins, Matthew D., Noll, Roger G., and Weingast, Barry R.. 1989. Structure and Process, Politics and Policy: Administrative Arrangements and the Political Control of Agencies. Virginia Law Review 75 (2):431–82.CrossRefGoogle Scholar
McKinnon, Ronald I. 1963. Optimal Currency Areas. American Economic Review. 53 (4):717–25.Google Scholar
Milesi-Ferretti, Gian Maria. 1995. The Disadvantage of Tying Their Hands: On the Political Economy of Policy Commitments. Economic Journal 105 (433):1381–402.CrossRefGoogle Scholar
Mishkin, Frederic S. 1999. International Experiences with Different Monetary Policy Regimes. NBER Working Paper 6965. Cambridge, Mass.: National Bureau of Economic Research.CrossRefGoogle Scholar
Moser, Peter. 1999. Checks and Balances and the Supply of Central Bank Independence. European Economic Review 43 (8):1569–93.CrossRefGoogle Scholar
Mundell, Robert A. 1961. A Theory of Optimum Currency Areas. American Economic Review 51 (4):657–65.Google Scholar
Mundell, Robert A. 1962. The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability. IMF Staff Papers 9 (1):70–9.CrossRefGoogle Scholar
Mundell, Robert A. 1963. Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates. The Canadian Journal of Economics and Political Science 29 (4):475–85.CrossRefGoogle Scholar
Neumann, Manfred J.M. 1991. Precommitment by Central Bank Independence. Open Economies Review 2 (1):95–112.CrossRefGoogle Scholar
Nordhaus, William D. 1975. The Political Business Cycle. Review of Economic Studies 42 (2):169–90.CrossRefGoogle Scholar
Oatley, Thomas. 1997. Monetary Politics: Exchange Rate Cooperation in the European Union. Ann Arbor: University of Michigan Press.Google Scholar
Obstfeld, Maurice, and Rogoff, Kenneth. 1995. The Mirage of Fixed Exchange Rates. Journal of Economic Perspectives 9 (4):73–96.CrossRefGoogle Scholar
Posen, Adam. S. 1995. Declarations are Not Enough: Financial Sector Sources of Central Bank Independence. NBER Macroeconomic Annual 10:253–74.CrossRefGoogle Scholar
Rogoff, Kenneth. 1985. The Optimal Degree of Commitment to an Intermediate Monetary Target. Quarterly Journal of Economics 100 (4):1169–90.CrossRefGoogle Scholar
Rose, Andrew. 2000. One Money, One Market: Estimating the Effect of Common Currencies on Trade. Economic Policy 30:7–46.Google Scholar
Simmons, Beth A. 1994. Who Adjusts? Domestic Sources of Foreign Economic Policy During the Interwar Years, 1924–1939. Princeton, N.J.: Princeton University Press.CrossRefGoogle Scholar
Soskice, David, and Iversen, Torben. 1998. Multiple Wage-Bargaining Systems in the Single European Currency Area. Oxford Review of Economic Policy 14 (3):110–24.CrossRefGoogle Scholar
Tavlas, George. 1994. The Theory of Monetary Integration. Open Economies Review 5 (2):211–30.CrossRefGoogle Scholar
Walsh, Carl E. 1993. Central Bank Strategies, Credibility, and Independence. Journal of Monetary Economics 32:287–302.CrossRefGoogle Scholar
Walsh, Carl E. 1995. Optimal Contracts for Central Bankers. American Economic Review 85 (1):150–67.Google Scholar