Working Paper: NBER ID: w15856
Authors: Alberto F. Alesina; Andrea Stella
Abstract: In this paper we critically review the literature on the political economy of monetary policy, with an eye on the questions raised by the recent financial crisis. We begin with a discussion of rules versus discretion. We then examine the issue of Central Banks independence both in normal times, in times of crisis. Then we review the literature of electoral manipulation of policies. Finally we address international institutional issues concerning the feasibility, optimality and political sustainability of currency unions in which more than one country share the same currency. A brief review of the Euro experience concludes the paper.
Keywords: No keywords provided
JEL Codes: E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Central Bank Independence (E58) | Lower Inflation (E31) |
| Political Pressures (D72) | Manipulation of Monetary Policy (E52) |
| Crisis Situations (H12) | Increased Political Pressure to Manipulate Monetary Policy (E52) |
| Manipulation of Monetary Policy (E52) | Inflationary Pressures (E31) |
| Timing of Elections (K16) | Exploitation of Monetary Policy (E52) |
| Exploitation of Monetary Policy (E52) | Temporary Increases in Output (E23) |
| Exploitation of Monetary Policy (E52) | Higher Inflation in the Long Run (E31) |
| Lack of Clear Rules (D82) | Economic Instability (E32) |