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Monetary Policy, Delegation and Polarization

Author

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  • Christian Schultz

    (Institute of Economics, University of Copenhagen)

Abstract

This paper studies the relation between political polarization and delegation of stabilization policy. There is asymmetric information about how the economy works: unlike voters, two political parties know the variance of an employment shock. Prior to an election each party proposes a central banker to be chosen if the party wins. If political polarization is small, voters will learn the true variance and the central banker and the stabilization policy are the ones most preferred by the median voter. If the political polarization is high, stabilization policy does not reflect the variance but only the preferences of the winning party.

Suggested Citation

  • Christian Schultz, 1998. "Monetary Policy, Delegation and Polarization," Discussion Papers 98-17, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:9817
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    Citations

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    Cited by:

    1. Philipp an de Meulen & Christian Bredemeier, 2012. "A Political Winner’s Curse: Why Preventive Policies Pass Parliament so Narrowly," Ruhr Economic Papers 0336, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. repec:zbw:rwirep:0336 is not listed on IDEAS
    3. Silvia Dominguez-Martinez & Otto Swank, 2006. "Polarization, Information Collection and Electoral Control," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 26(3), pages 527-545, June.
    4. Gianmaria Martini & Cinzia Rovesti, 2004. "Antitrust policy and price collusion. Public agencies vs delegation," Recherches économiques de Louvain, De Boeck Université, vol. 70(2), pages 127-151.
    5. Thomas Jensen, 2013. "Elections, Information, and State-Dependent Candidate Quality," Discussion Papers 13-03, University of Copenhagen. Department of Economics.
    6. Bohn, Frank, 2002. "Public Finance under Political Instability and Debt Conditionality," Economics Discussion Papers 8843, University of Essex, Department of Economics.
    7. Schultz, Christian, 2002. "Policy biases with voters' uncertainty about the economy and the government," European Economic Review, Elsevier, vol. 46(3), pages 487-506, March.
    8. Heidhues, Paul & Lagerlof, Johan, 2003. "Hiding information in electoral competition," Games and Economic Behavior, Elsevier, vol. 42(1), pages 48-74, January.
    9. Foerster, Manuel & Voss, Achim, 2022. "Believe me, I am ignorant, but not biased," European Economic Review, Elsevier, vol. 149(C).
    10. an de Meulen, Philipp & Bredemeier, Christian, 2012. "A Political Winner's Curse: Why Preventive Policies Pass Parliament so Narrowly," Ruhr Economic Papers 336, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    11. Thomas Jensen, 2015. "Elections, Information, and State-Dependent Candidate Quality," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(5), pages 702-723, October.
    12. Debora Di Gioacchino & Sergio Ginebri & Laura Sabani, 2004. "Political support for anti-inflationary monetary policy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 187-200.
    13. Bohn, Frank, 2002. "Eliminating the Inflationary Finance Trap in a Politically Unstable Country: Domestic Politics versus International Pressure," Economics Discussion Papers 8853, University of Essex, Department of Economics.

    More about this item

    Keywords

    business cycles; polarization; monetary policy;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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