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Partisan Fiscal Policy in a Monetary Union: Asymmetric Shocks, Delegation and Welfare

Author

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  • Álvaro M. Pina

Abstract

This paper studies the impact of partisan national fiscal policy on the optimal central bank design of a two-country monetary union. In each country two parties with different preferences compete for office, their succession in power being formalized as zero-mean political shocks. These contrast with supply disturbances both because political shocks call for more, rather than less, central bank conservatism and insofar as cross-country shock asymmetry is actually beneficial to welfare. Further, by combining Rogoff-type 'weight-conservatism' with an inflation target it is possible to ensure that monetary delegation always benefits both parties.

Suggested Citation

  • Álvaro M. Pina, 2000. "Partisan Fiscal Policy in a Monetary Union: Asymmetric Shocks, Delegation and Welfare," Working Papers Department of Economics 2000/10, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp102000
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    Cited by:

    1. Beetsma, Roel M.W.J. & Lans Bovenberg, A., 2006. "Political shocks and public debt: The case for a conservative central bank revisited," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 1857-1883, November.

    More about this item

    Keywords

    Political cycles; monetary union; central bank independence; asymmetric shocks.;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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