money deficit and public debt in the united states this study estimates the underlying parameters in a dynamic game between the fiscal and monetary authorities over the determination of public debt these estimates reveal the policymakers attitude towards the goal of stabilizing the time path of public debt the central finding is that in the united states during the 1955 85 period this goal has been pursued by the fiscal authority but not by the central bank monetary policy has not monetized the stock of public debt outstanding whereas cyclically adjusted net of interest fiscal deficits have been reduced to offset increases in the stock of debt in circulation copyright 1989 by mit press

unemployment rates and political outcomes an incentive for manufacturing a political business cycle in recent years the interdependence of politics and economics has received an increasing amount of attention by both economists and political scientists the explanation for this interest lies in the rediscovery of political economy and may be at least partly due to the recent experiences that governmental advisors have had with simultaneously increasing inflation and unemployment conventional macroeconomic approaches have failed to pin point causes for the stagflation and to provide methods for solving the problem the traditional economic policies may have failed in part because these traditional solutions were simply not plausible in the political environments in which they were proposed it is the intent of a growing body of work to develop macromodels with endogenous political sectors the inference made in this literature is that 1 the economy can be manipulated or affected by a political sector and that 2 there is an incentive for the political sector to manipulate the economy this literature has however just begun to formalize the interaction of the political and economic sectors and empirical work is virtually nonexistent the purpose of this paper is to present some evidence on these two inferences in section 1 the first inference is examined in section ii literature on which the first inference is based is reviewed and evidence on the possible incentive to create such a cycle is presented in section iii concluding remarks are offered

a dynamic analysis of the impact of fiscal policy on the money supply note although a positive accommodative fiscal policy money supply relationship is frequently suggested 3 5 often because of an hypothesized overriding concern by the federal reserve with stabilizing interest rates the availablae empirical evidence is mixed l with the exception of 4 the empirical studies have provided estimates of the impact multipliers for various fiscal variables on alternative monetary variables but they have not addressed the question of the impact of a sustained change in a fiscal variable upon the money supply over time in a world in which fiscal variables affect financial and product sector variables with a lag the examination of only the impact multipliers may give an incomplete and or misleading picture thus the aim of this paper is to extend the analysis to a dynamic setting in which the impact of the fiscal variables upon the time path of m1 is examined within the context of a small macroeconomic model in particular dynamic multipliers for the money supply are derived and analyzed

price pass through and the minimum wage this paper tests a textbook consequence of competitive markets that an industry wide increase in the price of labor is passed on to consumers through an increase in prices using several data sources on restaurant prices i explore the price impact of minimum wage hikes in canada and the united states particular attention is paid to the timing of these price responses to gauge the stickiness of minimum wage cost shocks i find that restaurant prices generally rise with changes in the wage bill and that this response is concentrated in the quarter surrounding the month during which the legislation is enacted

central bank independence a critical view from a developing country perspective abstract merely establishing an independent central bank may not bring about its professed benefits in developing countries with shallow financial markets where there is limited scope for a truly independent monetary policy the benefits of an independent central bank may be eroded by conflicts between fiscal and monetary policy and by inherent problems of central bank institutional design so that problems of dynamic inconsistency associated with monetary policy are not solved but merely transformed less developed countries wishing to establish a low inflation path should concentrate on instituting financial policy reforms that bolster opposition to inflation and institutional arrangements that force discipline on fiscal policy directly rather than indirectly through monetary policy

dynamic optimization of political popularity in an empirical macroeconomic model we estimate a political popularity function for israel taking account of the effects of institutional and political changes on the structure of the function and then use this function in conjunction with a simple macroeconomic model of the israeli economy to calculate dynamic macroeconomic strategies which would have maximized the political popularity of three previous israeli governments we conclude that the dominant strategy was always to keep unemployment at the natural rate but that this strategy was optimally combined with either rising inflation close to elections for the earlier governments or with near zero inflation throughout the term for later governments

the state of the federal budget and the state of the economy further evidence simultaneous monetary and fiscal policy reaction functions are derived and estimated for the 1969 2 1984 3 period the results suggest that the reagan administration has abandoned fiscal policy as a stabilization tool furthermore although the average money growth rate declined in the reagan administration variation in the rate of money growth indicates that monetary policy has been used to combat unemployment finally monetary and fiscal policies were not coordinated during this period rather monetary and fiscal policy appear to be set by a nash equilibrium in a non cooperative game in a nash equilibrium the policy chosen by each authority maximizes its payoff given the policy choice of the other authority

political economic chaos abstract this paper investigates the political business cycle when interest group pressure on fiscal policy is incorporated two cases are investigated one in which only autonomous investment is included and one in which a kaldor type induced investment function is incorporated in both cases chaotic fluctuations can emerge even when the politically motivated fiscal forcing term is fairly small

federal reserve independence abstract the federal reserve is always called an independent agency the term independent is rarely defined the only attempt in the literature and internal records is based on chairman martin s statement that the federal reserve is independent with the government not independent of the government martin explained several times that independence within government meant that the federal reserve helped to finance government budget because they were approved by congress and signed by the president financing budget deficits is the very opposite of the principle adopted when congress approved the federal reserve act in 1913 in fact the federal reserve has supported treasury operations many times i conclude that it is far more important to have an enforceable policy rule such as the taylor rule but any rule must have a provision that permits the rule to be set aside

political business cycles 40 years after nordhaus the aim of this article is to survey the huge literature that has emerged in the last four decades following nordhaus s rev econ stud 42 2 169 190 1975 publication on political business cycles pbcs i first propose some developments in history of thought to examine the context in which this ground breaking contribution saw the light of the day i also present a simplified version of nordhaus s model to highlight his key results i detail some early critiques of this model and the fields of investigations to which they gave birth i then focus on the institutional context and examine its influence on pbcs the actual research agenda finally i derive some paths for future research

an essay on the rationality of economic policy the test case of the electional cycle the literature on electional cycles is discussed in the light of the empirical findings by in particular the author two basically different types of explanations of such cycles are compared explanations based on the maximizing behavior of governments aiming at re election explanations building on the insufficiently controlled pressures of events in a democracy it is demonstrated that even when the most well known theory under the nordhaus macraemodel is a rather fragile construction a more robust argument termed the popularity investment argument can be constructed yielding the same basic result from the empirical literature it is concluded that almost the opposite pattern actually occurs in the data it is finally demonstrated that the weak but significant empirical pattern is easy to explain by the elections generate promises which give most real expansion in the second governmental year and most inflation in the third year an average behavior which hardly implies even medium term maximization by governments as assumed under

general economic conditions and national elections the fact that economic conditions influence voters is a leading commonplace of conversation in election years the question is is this fact in fact a fact despite the overwhelming popularity of the fact it has received neither an explicit theoretical analysis presumably because it is so obvious that economic adversity should create political adversaries nor until recently a satisfactory statistical analysis gerald h kramer has presented a multivariate analysis of congressional elections which would strongly suggest that fluctuations in the rate of unemployment have no appreciable effect upon elections but that fluctuations in per capita real income are influential in the following pages i propose to 1 reaffirm his finding on the electoral unimportance of ordinary fluctuations in unemployment 2 argue that contrary to kramer fluctuations in real income also do not have important electoral effects and 3 present an argument based upon rational voter behavior for the unimportance of general economic conditions in national elections

investments in human capital wage uncertainty and public policy abstract the importance of risk characteristics of human capital for the design of tax and education policy is explored wages are uncertain and education while increasing the expected wage may increase or decrease wage variance the government has strong reasons to encourage human capital formation in the latter case partly due to the insurance effect of human capital and partly due to the way the individuals under a plausible restriction on prudence respond to changes in risk the analysis is illustrated using two models of education one where education helps the individuals make better occupational choices and a standard risk augmented becker type model

who pays for the minimum wage this paper analyzes the eects of a large 60 and persistent increase in the minimum wage instituted in hungary in 2001 we propose a new approach to estimating the employment eects of a minimum wage increase that exploits information on the distribution of wages before and after the policy change we infer the number of jobs destroyed by comparing the number of pre reform jobs below the new minimum wage to the excess number of jobs paying at and above the new minimum wage our estimates imply that the higher minimum wage had at most a small negative eect on employment and so the main eect was pushing up wages we then use data on a large panel of firms to evaluate the economic incidence of the minimum wage increase contrary to theoretical models that attribute the small employment eects of minimum wage changes to monopsonistic wage setting we find no evidence that the rise in the minimum wage led to lower profitability among low wage employers instead we find that the costs of the minimum wage were largely passed through to consumers

the state of the federal budget and the state of the economy this paper tests systematic responses of the federal budget to forecasts of inflation and unemployment estimated coefficients from fiscal policy reaction functions are examined to determine whether there are such systematic responses additionally the coefficients of these estimated fiscal policy reaction functions are used to test several hypotheses concerning fiscal policy which have been advanced in the political business cycle and public choice literatures

deficits money and inflation abstract this paper examines the interrelationships between monetary and fiscal policy specifically it seeks to determine whether government budget deficits influence monetary growth using a money supply model originally developed by barro we find that deficits have had a significant impact on the growth of the u s money supply throughout most of the period since 1961 such a relationship need not always hold it depends on whether government deficits place upward pressure on interest rates and whether the central bank monetizes the debt in an effort to stabilize interest rates

how effective is the minimum wage at supporting the poor this study investigates the antipoverty efficacy of minimum wage policies proponents of these policies contend that employment impacts are negligible and suggest that consumers pay for higher labor costs through imperceptible increases in goods prices adopting this empirical scenario the analysis demonstrates that an increase in the national minimum wage produces a value added tax effect on consumer prices that is more regressive than a typical state sales tax and allocates benefits as higher earnings nearly evenly across the income distribution these income transfer outcomes sharply contradict portraying an increase in the minimum wage as an antipoverty initiative

the bundesbank s path to independence evidence from the 1950s the german bundesbank is frequently called the world s most independent and conservative central bank taking account of the path dependency of this reputation both quantitative data and qualitative data on german central bank law and political conflicts are used to determine the factors that contributed to this reputation in the 1950s it is shown that quantitative analysis has its limits and that law might be a misleading indicator in this respect it is rather the analysis of policy conflicts between the bundesbank and the government that yields information on the bank s path to independence

the applicability of the traditional theory of economic policy abstract the traditional theory of economic policy requires targets instruments an empirical economic model and a social welfare or criterion function to be specified in order to derive the optimal economic policy empirical studies of reaction functions suggest that economic policy is carried out in some systematic manner subject to interference from political factors this survey addresses the problems of specifying estimating and applying an economic model when economic policy is following a path specified by a reaction function attention is paid to rational expectations the lucas critique and the policy neutrality proposition lack of knowledge of the policy maker s objective function poses the most serious difficulty when applying the theory of economic policy various methods of determining this function are reviewed and the possibility that policy makers might be satisficing is discussed the role played by political factors is considered in the light of the public choice literature

unraveling the relationship between presidential approval and the economy a multidimensional semiparametric approach summary empirical studies analyzing the determinants of us presidential popularity have delivered quite inconclusive results concerning the role of economic variables by assuming linear relationships we employ penalized spline smoothing in the context of semiparametric additive mixed models and allow for flexible functional forms and thus possible nonlinear effects for the economic determinants by controlling for the well known politically motivated covariables we find strong evidence for nonlinear and negative effects of unemployment inflation and government consumption on presidential approval additionally we present new results in favor of nonparametric trivariate interaction effects between the macroeconomic covariables copyright 2014 john wiley sons ltd

the keynesian and political determinants of unbalanced budgets u s fiscal policy from eisenhower to reagan the political business cycle proposition that politicians manipulate fiscal policy for political advantage is largely untested more often than not such manipulation is only assumed to occur on the basis of observed movements in inflation and unemployment and the few direct tests of the manipulation hypothesis are characterized by limited consideration of the full possibilities for political influence inadequate control for nonpolitical stabilization policy and inconsistent results this paper constructs several models of political fiscal policy incorporates them into a simple model of keynesian stabilization policy and tests the combined models using u s budget surplus deficit data from fy54 to fy83 the results provide little support for either the electoral motivation or partisan differences interpretations of the political business cycle the implications of these findings for the political business cycle literature long term economic management and deficit directed proposals for institutional reform are discussed

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

the political process and the use of debt financing by state governments empirical evidence offered in this study suggests that decisions by state government officials to effect debt financed spending depend in part on the state s gubernatorial election cycle more specifically the results reveal relative increases in state debt issues in anticipation of elections and furthermore they reveal that such increases are more significant for states characterized by high interparty political competition while theoretical limitations preclude a definitive explanation for these results the evidence is consistent with a view of state political markets where incumbent parties manipulate public policy so as to enhance the probability of success in pending elections this insight is significant in that it suggests a relationship between public policy decisions and election cycles in a context heretofore unexplored

an assessment of two environmental and economic benefits of cash for clunkers abstract this research aims to provide a more comprehensive life cycle accounting of two categories of environmental and economic benefits associated with the 3 billion us cash for clunkers vehicle scrappage program first using a life cycle emissions methodology developed in lenski et al 2010 we find that about 29 000 metric tons of criteria pollutant emissions were avoided for a benefit of about 23 million avoided carbon dioxide emissions by comparison provided a benefit worth 90 million second we compare the market value of scrapped vehicles to the rebates provided calculating the consumer surplus or gift to participants to be up to 2 billion about 2000 to 3000 per vehicle this is significantly more than offered in previous vehicle scrappage programs and suggests opportunities to get more environmental and economic bang for the buck finally these two categories of benefits are found to be heavily concentrated geographically around urban centers about 2 of us counties 50 counties received 50 and 30 of the aggregate benefits from avoided criteria pollutant emissions and consumer surplus from the rebates respectively

the effect of minimum wages on employment a factor model approach this paper resolves issues in the minimum wage employment debate by using factor model econometric methods to address concerns related to unobserved heterogeneity recent work has shown that the negative effects of minimum wages on employment found using traditional methods are sensitive to the inclusion of controls for regional heterogeneity and selection of states that experience minimum wage hikes leaving the two sides of the debate in disagreement about the appropriate approach factor model methods are an ideal solution for this disagreement as they allow for the presence of multiple unobserved common factors which can be correlated with the regressors these methods provide a more exible way of addressing concerns related to unobserved heterogeneity and are robust to critiques from either side of the debate the factor model estimators produce minimum wage employment elasticities that are much smaller than the traditional ols results and are not statistically different from zero these results hold for many specications and two datasets that have been used in the minimum wage employment literature a simulation shows that unobserved common factors can explain the different estimates seen across methodologies in the literature

electoral politics and monetary policy does the bank of canada contribute to a political business cycle in this paper i apply the work of abrams and iossifov public choice 129 249 262 2006 to monetary policy in canada to see if same political party affiliation is needed to produce evidence of political opportunism after modifying their analysis to maintain the time series consistency of their variables for canada i find that both an error correction model and a taylor rule reformulation of their test generate evidence consistent with same party political opportunism but only weakly so on the other hand i also find the presence of more traditional indicators of political influence in particular the data suggest that the election of a liberal party government a decrease in the degree of political competition and to a lesser extent the election of a minority government all positively influence the expansiveness of canadian monetary policy

do minimum wage increases influence worker health this study investigates whether minimum wage increases impact worker health in the united states we consider self reported measures of general mental and physical health we use data on lesser skilled workers from the 1993 to 2014 behavioral risk factor surveillance survey among men we find no evidence that minimum wage increases improve health instead we find that such increases lead to worse health outcomes particularly among unemployed men we find both worsening general health and improved mental health following minimum wage increases among women these findings broaden our understanding of the full impacts of minimum wage increases on lesser skill workers jel i1 i11 i18

presidential politics budget deficits and monetary policy in the united states 1960 1976 this paper has focused on the extent to which the traditional tools of macroeconomic management in the united states monetary and fiscal policy have contributed to a political business cycle regardless of whether politicians can successfully influence real economic variables to their own ends the evidence presented here suggests that they tried and that they enjoyed some at least indirect aid from their independent monetary authorities in doing so several major conclusions emerge

the relationship between budget deficits and money demand evidence from a small economy a considerable number of empirical studies exploring the links between budget deficits and the demand for money have led to mixed results by using annual data of the greek economy and previous empirical studies this paper empirically evaluates the sensitivity and validity of the keynesian proposition and the ricardian equivalence hypothesis the paper employs cointegration ecm methodology and several diagnostic and specification tests the empirical findings show a significant and positive relationship between budget deficits and the demand for money supporting the keynesian model

the political timing of errors in inflation forecasts errors in inflation forecasts do not display a regular electoral rhythm over the entire post war period these results are consistent with the work of mccallum 1978 who explored a sample of similar length and failed to find an electoral pattern in unemployment rates however if unanticipated inflation is regarded as a lagging indicator of policy effectiveness then the data do suggest that three of the four most recent administrations have enjoyed a certain success in manufacturing a pre election upturn

political and economic determinants of interest rate behavior are central banks different i introduction do politicians manipulate the instruments of macroeconomic policy to improve their electoral prospects or in response to the preferences of their own party these questions are addressed but not yet resolved by the literature on political business cycles 1 to generate a political business cycle politicians must control the instruments of macroeconomic policy monetary policy plays an important role in the determination of inflation output and employment the objects of concern to politicians and voters yet politicians do not directly control the instruments of monetary policy in industrialized countries instead these instruments are controlled by the central banks which vary widely across countries in their degree of statutory independence we wish to examine empirically whether monetary policy is influenced by the timing of elections or a change in the party in power after controlling for unexpected changes in economic fundamentals our paper assesses therefore one aspect of independence namely whether a central bank makes monetary policy decisions without measurable political influence 2 in this study we attempt to look at what central banks actually do as opposed to what they are legislated to do to distinguish between the form and substance in discussions of central bank independence as in mayer 1976 3 our paper enlarges and improves on cowart 1978 and woolley 1983 both of whom studied the role of political factors in monetary policy for a sample of industrialized countries our methodology is to compare the responsiveness of interest rate changes to economic and political factors in seventeen countries as we discuss below there are differences in opinion about whether an interest rate variable or a monetary aggregate is a better representation of monetary policy actions we compare the results of qualitative measures of differences in central bank design e g rankings of banks in order of independence as determined by legislative criteria with the results of a quantitative comparison of differences in central bank behavior this exercise should help identify the important qualitative features in the reform of existing central banks or in the design of new central banks 4 in our empirical work the relevant relationships are estimated with a recursive vector autoregression technique to control for temporal instability in the economy between 1960 and 1990 and the endogeneity of the variables in question this methodological innovation has important consequences for the understanding of reaction functions and more generally for measuring the impact of macroeconomic shocks on monetary policy we also stress results for separate subsamples of fixed and flexible exchange rates as well as for the full sample our methodology measures the influence of politics on monetary policy relative to the choices and information actually available to the central bank when the monetary policy decision was made our study does not measure the influence of politics on the instruments of fiscal policy as in alesina et al 1991 our study also does not measure the direct influence of fiscal variables on the instruments of monetary policy although there is some evidence on this issue in for example parkin 1986 and burdekin and wohar 1990 burdekin and wohar estimate the relationships between deficits money base growth and inflation for a sample of countries and time period comparable to ours all these studies find some evidence that central banks do accommodate fiscal policy by financing deficits via money growth especially since the end of bretton woods we return to the issue of fiscal policy in considering the interpretation of our results but stress that the effects of fiscal policy are partly captured in our specifications because we measure monetary policy relative to the state of the economy 5 a brief review of the literature which measures statutory central bank independence is given in section ii

electoral and welfare consequences of political manipulation of the economy abstract this paper examines the long term electoral and welfare consequences of repeated strategies whereby a political office holder induces cycles in economic variables to maximize his chances of re election unlike other studies of political business cycles we focus on questions of the desirability of these cyclical patterns and on the long run properties of these political economic models noting that the welfare costs of vote maximizing in a single term extend beyond that term we examine in detail the properties of the long run equilibrium path to which such cycles converge if the economy starts above this path vote maximizing can lead to increased social welfare and vote margins however if the economy starts below this path vote maximizing in the present can cause reduced votes and electocal defeat in subsequent terms this possibility should lead a far sighted enlightened politician or political party to eschew vote maximizing tactics and the political business cycles which accompany them and thus canhelp explain why empirical studies have not found convincing evidence of the existence of such cycles this paper also quantifies the dependence of this long run equilibrium path on the important political and economic parameters of the model

political instability and economic fluctuations in the republic of korea this paper investigates the interaction between political instability and economic fluctuations during the late president chung hee park s regime the timings and outcomes of the elections are juxtaposed with the phases of business cycles and analyzed since no korean data that are comparable to gallup poll popularity indices for the u s presidents exist indices to measure popular discontent with park s regime and to measure international tensions are devised these indices are statistically analyzed with economic indicators for the business cycles and with economic policy measures

the bundesbank s communications strategy and policy conflicts with the federal government in this paper we provide an estimate of the likelihood of conflict between the federal government and the bundesbank for the 1989 1998 period we rely on a novel proxy for the impact of public communication by bundesbank officials on the probability of conflict in addition to interest rate exchange rate money supply behavior as well as electoral influences the empirical evidence is consistent with the view that speeches by the bundesbank president dealing with inflation and economic policy are a positive source of conflict in a probabilistic sense conflict was not a constant but flared up at times of economic stress and could be exacerbated by the talking of bundesbank officials

unanticipated money and the political business cycle six different series of one period forecasts for money growth are generated for each year 1960 through 1984 the prediction errors are analyzed to see whet herthe authorities attempted to expand the economy in election years by unexpectedly raising money growth while there is no evidence of attempts to fool the public throughout the entire 1960 84 period such fooling may have been tried through 1974 it is speculated that the public discussion of expectations formation and of politicians motivations since then may have signaled officials that further attempts to mislead the public would be prohibitively costly copyright 1986 by ohio state university press

the political manipulation of macroeconomic policy conventional wisdom and some research indicate that macroeconomic policies follow cycles corresponding to political as well as economic forces using vector autoregression analysis i test three models of monetary policy determination for the united states 1953 1984 the electoral cycle model that reelection motivations on the part of presidents create a policy cycle the party differences model that policy changes reflect revolving presidential party administrations and the referendum model that changes in presidential approval create in effect a continuing referendum allowing presidents to monitor their success and change macroeconomic policies when necessary analysis shows that monetary policies as measured by the monetary base and short term interest rates respond to the election cycle and presidential approval although the effect on macroeconomic outcomes is ambiguous party differences are found in real income but are not very significant in other variables

fiscal constraints and electoral manipulation in american social welfare a merican social welfare policy involves a politically significant fiscal interaction between short run pay as you go constraints and long run equilibrium constraints motivated by the contributory principle and the concept of actuarial soundness the fiscal constraints induce conflict between benefit recipients and payroll tax payers to support small election year reductions in payroll taxes means tested program benefits are slightly reduced in election years compared to non election year levels under similar economic conditions the existence of the constraints and of the election year changes is tested using a multivariate time series regression model of monthly transfer payments and contributions for social insurance during years 1948 87 short run dynamics arefound to be weakly incrementalist but otherwise the results support the argument extraordinary manipulations are identified during 1972 special technical features of the econometric analysis are a nonlinear dynamic specification robust generalized method of moments estimation and near cointegration

the minimum wage and the great recession evidence of effects on the employment and income trajectories of low skilled workers abstract we estimate the minimum wage s effects on low skilled individuals employment and income trajectories following the great recession our approach exploits two dimensions of the data we analyze first we compare individuals in states that were fully bound by the 2007 to 2009 increases in the federal minimum wage to individuals in states that were not second we use variation in the minimum wage s bite across skill groups to separate our samples into target and within state control groups using the 2008 panel of the survey of income and program participation we find that binding minimum wage increases had significant negative effects on the employment and income growth of targeted workers although there are important limitations to our research designs our estimates are robust to adopting a range of alternative strategies to construct our analysis samples and to account for variation in the great recession s underlying severity across states in aggregate our estimates suggest that this period s minimum wage increases reduced aggregate employment rates by at least half of a percentage point in states that were bound by the federal minimum wage increases because our estimates are large relative to what one would infer from past research we emphasize the relevance of the historical episode we analyze

federal deficits and money growth in the united states a vector autoregressive analysis abstract a multivariate var modelling technique is employed in this paper to test for causality between federal deficits and money growth in the united states four alternative causality hypotheses including the common accommodation view are examined in addition to the two policy variables four other related macro variables are included in the empirical analysis namely short term interest rates prices real output and exchange rates the var results consistently reject the accommodation hypothesis and indicate that monetary and fiscal policy actions are set independently in the united states other causality inferences are also obtained and their implications are discussed

the electoral budget cycle this article begins with a review of the now substantial literature on the thesis that polticians manipulate governmental outputs so as to favor their chances of reelection it concludes that while this electoral cycle thesis was initially overstated by its proponents it retains more plausibility than recent critics have allowed this conclusion is then demonstrated through an analysis of expenditures by the ten provincial governments in canada between 1951 and 1984

international transmission of us macroeconomic policy and the inflation record of western europe abstract the interaction between monetary policy government budget deficits and inflation is examined for the four largest western european economies comprising france italy the united kingdom and west germany in order to assess the possible impact of us macroeconomic policy past us monetary base growth deficits and inflation rates are included in the set of explanatory variables for each of the european countries empirical results for the 1962 2 1985 4 sample period reveal interplay between domestic monetary and fiscal policy to be augmented by a significant impact of the us variables across all four countries in the sample

a survey of the effects of the minimum wage on prices abstract it is well established in the literature that minimum wage increases compress the wage distribution firms respond to these higher labour costs by reducing employment reducing profits or raising prices while there are hundreds of studies on the employment effect of the minimum wage there are merely a handful of studies on its profit effects and only a couple of dozen studies on its price effects furthermore a comprehensive survey on minimum wage price effects is not available in the literature given the policy relevance of this neglected issue in this paper we summarize and critically compare the available evidence on the effects of minimum wages on prices

federalism and central bank independence the politics of german monetary policy 1957 92 two channels of political control allow elected politicians to influence monetary policy first political threats to the status structure or very existence of the central bank may force central bankers to comply with politically motivated demands on monetary policy second politicians may use their powers of appointment to ensure that central bank appointees share their electoral and party political goals this paper derives the monetary policy outcomes obtained as a function of the degree of central bank independence zero partial or full and central bankers types partisans or technocrats based on a case study of the 1957 and 1992 institutional changes to the german central banking system and a regression analysis covering the period in between i argue that the formal independence of the system is protected by its embeddedness in the institutions of german federalism and by the federalist components of its decentralized organizational structure the behavioral independence of the german central bank fluctuates over time with the party control of federalist veto points the bundesbank is staffed with nonpartisan technocrats who are partially insulated from political pressures

congress and the federal reserve we examine legislative activity targeting the federal reserve to determine when congress takes an interest in the fed and whether this interest has an effect on monetary policy using a keyword search of the thomas catalogue for the period from january 1973 through december 2010 we identify 1575 bills in the house and 728 bills in the senate pertaining to the federal reserve we classify these bills into several categories including those that expand fed powers and those that threaten or usurp fed powers using the romer and romer 2004 series of monetary policy shocks we find that prior to the early 1980s the fed responded to bills credibly threatening fed powers by lowering the federal funds target below that prescribed by current and forecast economic conditions however this accommodation ceased following the end of the non borrowed reserves targeting period in october 1982 analyzing the determinants of bill sponsorship we find that high unemployment high inflation and high long term real borrowing costs failures of the fed along the three dimensions of its mandate all lead to a greater number of bills seeking to alter the fed s powers importantly we also find that the relative importance of these three dimensions has changed over time under chairmen burns and miller congress took greater interest when unemployment was high under chairman greenspan congress took greater interest when inflation was high we believe that these findings are consistent with the view that the lessons of the great inflation changed the public perception of the fed s macroeconomic responsibilities which in turn better aligned congressional views on policy with those of the fed and allowed the fed to better resist remaining congressional pressure to its independence

the spending and debt response to minimum wage hikes abstract immediately following a minimum wage hike household income rises on average by about 250 per quarter and spending by roughly 700 per quarter for households with minimum wage workers most of the spending response is caused by a small number of households who purchase vehicles furthermore we find that the high spending levels are financed through increases in collateralized debt our results are consistent with a model where households can borrow against durables and face costs of adjusting their durables stock jel d12 d14 d91 j38

monetary policy signaling from the administration to the federal reserve this chapter employs the index of monetary policy signaling from the administration to the federal reserve safer that was developed in chapter two the safer index is a simple weekly sum of articles that appeared in the wall street journal in which administration officials expressed a desire for easier 1 or tighter 1 monetary policy a key assumption is that systematically over time the financial media capture the essence of communication that is going on between the executive branch and federal reserve officials 1 the signaling index is employed in ordinary least squares regressions for the period from january 1964 to november 1991 cumulative values of the safer index over a three week period as an explanatory variable are found to have a statistically significant effect on the average federal funds rate during the third week as the dependent variable further evidence suggests that the safer index is granger causal with respect to the federal funds rate after classifying the signals by sources within the administration oval office council of economic advisers treasury and other and unidentified sources it is shown that for the overall 1964 1991 period signals from the treasury department and from other and unidentified sources have a statistically significant effect on the federal funds rate while signals from the oval office and the council do not when the data are segmented according to who was the chairman of the federal reserve board at the time ordinary least squares results indicate that the federal reserve did not systematically respond to executive branch signaling in a statistically significant way when william mcchesney martin g william miller and alan greenspan were chairmen but did respond statistically significantly to administration signaling during portions of the periods during which arthur burns and paul volcker were chairmen

is there a dead spot new evidence on fomc decisions before elections using new data that chronicle the fed s internal forecast of the output gap from 1973 to 1998 this paper tests for an electoral cycle in the decisions of the federal open market committee fomc the paper provides evidence of a dead spot in the committee s decisions before presidential elections for given values of these internal forecasts the fomc is less likely to decide to tighten monetary policy in the year preceding a presidential election than at other times

checks and balances and the supply of central bank independence abstract the paper analyzes the institutional conditions under which policymakers can credibly commit to an independent central bank and thereby mitigate the well known time consistency problem in monetary policy it is shown theoretically that granting independence via a statute is only credible for legislative systems with at least two heterogeneous decision making bodies which both have veto rights for example bicameral systems this thesis is supported by empirical evidence the legal independence of central banks is significantly higher in those oecd countries whose legislative processes are characterized by extensive checks and balances furthermore the negative relation between legal independence and inflation is larger in countries with checks and balances than in countries without checks and balances

durable goods and long run electricity demand evidence from air conditioner purchase behavior i estimate a dynamic structural model of demand for air conditioners the most energy intensive home appliance in the us the model explores the links between demand for durable goods and expected changes in key attributes energy efficiency and price i incorporate expectations explicitly as a feature of the choice setting and use parameter estimates from the model to calculate durable good demand elasticities with respect to energy efficiency electricity price and price of the durable itself these estimates fill a large gap in the literature and also shed light on consumer behavior in this setting results indicate that consumers are forward looking and value the stream of future savings derived from energy efficiency

partisan political business cycles in the german labour market empirical tests in the light of the lucas critique this paper focuses on alternative specifications ofpartisan political business cycles partisan theory rational partisan theory and hysteresis augmentedrpt it elaborates on analogies of the natural ratehypothesis underlying all specifications and thecointegration concept accordingly problems of thespecification of hypotheses estimation and inferencein a cointegrating framework with politicalinterventions are treated super exogeneity tests areshown to be equivalent to tests of the lucas critiqueand the rpt therefore the concept ofsuper exogeneity is transferred to empirical tests ofpartisan cycles by this a new testing framework ofpartisan cycles is developed and applied to germanlabour market data

political models of the business cycle should be revived political models of the business cycle have typically been ignored because they appear inconsistent with rational behavior and because empirical evidence is inconclusive this paper addresses the second issue demonstrating for u s real gnp unemployment and inflation that electoral cycles persistent patterns across electoral terms are significant but apparently only for republican incumbents and that partisan cycles persistent differences between parties are also significant these findings are consistent with the conjecture that a minority party is more constrained by electoral concerns whereas a majority party is freer to pursue partisan objectives

how are exchange rates managed evidence of an anchor based heuristic central banks often intervene in the foreign exchange market to obtain desirable exchange rates how this is done has remained totally opaque although central banks are likely to adopt a satisficing rather than optimizing strategy as they need to intervene frequently in a timely manner under incomplete information in this paper we propose a simple exchange rate management rule that spreads the volatilities originated from the anchor currencies among the exchange rates with the domestic currency we test out this rule on 10 currencies and find the empirical evidence consistent with the proposed anchor based heuristic

central bank behavior a positive empirical analysis abstract the central bank is analyzed as a utility maximizing unit acting in the framework of a politico economic model it derives utility from keeping the price level stable and is constrained by government the structure of the economy and the political commitment to stable exchange rates it uses a satisficing strategy concentrating on keeping conflicts with government below a certain level in the case of serious conflict the central bank follows the policy directions undertaken by government but with a time lag the complete model comprising endogenous consumer voters government and central bank is econometrically tested for germany with good results

the congress and fiscal policy although the common belief is that the congress has paid little attention to fiscal policy the same kinds of political economic models which have been used to explain presidential budgetary policy may be used equally well to explain congressional budgetary behavior the congress fiscal policy appears to be systematically sensitive to both economic and political factors changes in the unemployment rate have a major impact on congressional budgetary policy as for political factors the president s lead is followed most closely on revenue proposals and not at all on the expenditure side the electoral cycle in particular the off year congressional election year is also important inducing larger deficits and smaller increases in revenues

studying the role of political competition in the evolution of government size over long horizons here we argue for the use of cointegration and error correction analysis to combine economic factors that are nonstationary with political factors that are stationary into an empirical model of the evolution of public policy over long periods the approach is applied to disentangle the contributions of economics and politics to the evolution of public expenditure by the government of canada over 130 years political competition emerges as the primary political factor affecting government size

monetary policy and presidential elections a nonpartisan political cycle this paper develops a federal reserve reaction function which relates policy intentions to forecasts of policy objectives pre and postpresidential election estimates of this reaction function for the post accord period of 1953 1984 suggest two conclusions

presidential elections and federal reserve policy an empirical test traditional macro economic models of federal reserve fed behavior typically assume that the fed enjoys a well defined objective function based on social welfare and generally predict counter cyclical monetary policy the increasing observation of procyclical monetary policy has led many researchers to investigate new models of fed behavior several recent papers imply that procyclical fed behavior is due to a lack of political accountability friedman 7 toma 23 and shughart and tollison 21 all attribute considerable bureaucratic discretion to the fed and seek to explain monetary policy by examining typical bureaucratic objectives other papers such as pierce 19 20 weintraub 26 and kane 10 11 argue that the fed operates in an arena filled with political constraints that cause sub optimal monetary policy but these constraints are not modeled explicitly one possible political constraint on fed behavior is the incumbent president s desire for re election in the political business cycle pbc literature presidential re election opportunities are enhanced by the production of a precise set of inflation and unemployment outcomes leading up to the election thus to the extent that presidents desire cyclical macro economic outcomes there will be executive pressure on the fed to create or accommodate such outcomes the effect this pressure will have on fed policy is ultimately an empirical question but most models deal with it by assumption traditional macro modeling assumes a zero effect while the pbc models implicitly assume that a favorable election cycle is a primary goal of all economic policymakers this paper examines presidential influence on the federal reserve by testing for an election cycle in money growth the major result is the identification of a regular 16 quarter cycle in money growth corresponding with presidential elections this cyclical effect is found to be stable over time and significant under a wide range of model specifications further when the cyclical component of money growth is used to simulate a simple macro model it produces a classic political business cycle in inflation and real output growth

the effects of fiscal stimulus evidence from the 2009 cash for clunkers program we evaluate the impact of the 2009 cash for clunkers program on short and medium run auto purchases our empirical strategy exploits variation across u s cities in ex ante exposure to the program as measured by the number of clunkers in the city as of summer 2008 we find that the program induced the purchase of an additional 370 000 cars in july and august 2009 however we find strong evidence of reversal high clunker counties bought fewer autos in the 10 months after the program expired which offset most of the initial purchases we find no evidence of an effect on employment house prices or household default rates in cities with higher exposure to the program jel codes h20 e62 copyright 2012 oxford university press

elections and the fed is there a political monetary cycle to understand the political causes of macroeconomic policy it is necessary to examine the institutions that actually make such policy and the incentives those institutions face an explanation of the political causes of united states monetary policy must treat the various institutions that are influential in the monetary policy process which are at a minimum the federal reserve fed and the executive including the president the treasury department and other advisors in the executive office of the president the reelection motive has proven useful in modeling presidential incentives in this article i investigate whether electoral incentives associated with the theory of the political business cycle pbc can help to explain the behavior of the fed over the last quarter century the political business cycle has had a curious hold on modern political economy while the empirical evidence in favor of the cycle is far from overwhelming its theoretical importance leads to continuing empirical

the local aggregate effects of minimum wage increases using variation in minimum wages across cities and controlling for differences in business cycle factors and long run local economic trends we find that following minimum wage increases both prices and nominal spending rise modestly these gains are larger for certain subcategories of goods such as food away from home and in locations where low wage workers account for a larger share of employment further minimum wage increases are associated with reduced total debt among households with low credit scores higher auto debt and increased access to credit

revisiting the minimum wage employment debate throwing out the baby with the bathwater we revisit the minimum wage employment debate which is as old as the department of labor in particular we assess new studies claiming that the standard panel data approach used in much of the new minimum wage research is flawed because it fails to account for spatial heterogeneity these new studies use research designs intended to control for this heterogeneity and conclude that minimum wages in the united states have not reduced employment we explore the ability of these research designs to isolate reliable identifying information and test the untested assumptions in this new research about the construction of better control groups our evidence points to serious problems with these research designs we conclude that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage

deficits politics and money growth the authors examine the linkage between federal deficits and money growth by allowing the fed s resp onse to any given deficit to vary systematically according to how the deficit is generated and the party affiliation of the current presid ent in equations for m1 and monetary base growth the structural def icit is consistently significant and invariant across political chang es while the cyclical component of the deficit or a direct measure of the business cycle is significant only during the tenure of democ ratic presidents copyright 1987 by oxford university press

the effect of minimum wages on low wage jobs we estimate the eect of minimum wages on low wage jobs using 138 prominent state level minimum wage changes between 1979 and 2016 in the u s using a dierence in dierences approach we first estimate the eect of the minimum wage increase on employment changes by wage bins throughout the hourly wage distribution we then focus on the bottom part of the wage distribution and compare the number of excess jobs paying at or slightly above the new minimum wage to the missing jobs paying below it to infer the employment eect we find that the overall number of low wage jobs remained essentially unchanged over the five years following the increase at the same time the direct eect of the minimum wage on average earnings was amplified by modest wage spillovers at the bottom of the wage distribution our estimates by detailed demographic groups show that the lack of job loss is not explained by labor labor substitution at the bottom of the wage distribution we also find no evidence of disemployment when we consider higher levels of minimum wages however we do find some evidence of reduced employment in tradable sectors we also show how decomposing the overall employment eect by wage bins allows a transparent way of assessing the plausibility of estimates

contemporary political economy d a hibbs jr and h fassbender eds north holland publishing company amsterdam 1981 pp x 282 dfl 80

supply constraints and housing market dynamics abstract although the volatility of house prices is often ascribed to demand side factors constraints on housing supply have important and little studied implications for housing dynamics i illustrate the strong relationship between the volatility of house prices and the regulation of new housing supply i then employ a dynamic structural model of housing investment to investigate the mechanisms underlying this relationship i find that supply constraints increase volatility through two channels first regulation lowers the elasticity of new housing supply by increasing lags in the permit process and adding to the cost of supplying new houses on the margin second geographic limitations on the area available for building houses such as steep slopes and water bodies lead to less investment on average relative to the size of the existing housing stock leaving less scope for the supply response to attenuate the effects of a demand shock my estimates and simulations confirm that regulation and geographic constraints play critical and complementary roles in decreasing the responsiveness of investment to demand shocks which in turn amplifies house price volatility

money and politics in a small open economy a time series analysis indicates monetary growth and the gallup poll in canada are systematically related at electoral cycle periodicities 5 to 20 quarters under flexible exchange rates and demonstrates the absence of an electoral component in canadian monetary growth under fixed rates these results confirm empirically a widely accepted extension of the mundell fleming argument that monetary policy is effective only under flexible rates which to my knowledge has not before been directly investigated international constraints on the small open economy under fixed rates lead to the abandonment of monetary policy as an active instrument in electoral politics

minimum wage shocks employment flows and labor market frictions we provide the first estimates of the effects of minimum wages on employment flows in the u s labor market identifying the impact using policy discontinuities at state borders we find that minimum wages have a sizable negative effect on employment flows but not stocks separations and accessions fall among affected workers we interpret our findings using a job ladder model in which minimum wage increases can reduce job to job transitions we find that a standard calibration of the model generates predicted relative magnitudes of the employment stock and flow elasticities that are very close to our reduced form estimates

interaction between central bank behaviour and fiscal policy the us case federal reserve behaviour is analysed using a model which incorporates an effect an effect of iscal pressure on monetary policy formulation incentive structures are hypothesized to be such that the central bank plans over a longer horizan than that relevant to the administration with the cyclically adjusted deficit proxying for fiscal pressure from the administration the response to the deficit then plays an interactive role in affecting the trade off weights applied to the competing goals of monetary policy the model performs well for the usa and provides a pattern of policy that is stable over the full 1961ndash 83 period

the federal reserve s response to aggregate demand and aggregate supply shocks evidence of a partisan political cycle the orthodox approach to modeling the fed s response to economic conditions is to employ a monetary policy reaction function most reaction functions are estimated by regressing a policy indicator possibly the federal funds rate or a monetary aggregate on variables that describe the state of the economy such as unemployment inflation and growth in output under certain conditions which we discuss below estimated coefficients from a reaction function provide information about the fed s monetary policy priorities moreover extending the model to include election and partisan dummy variables may provide information about the fed s response to political pressures there are two problems with interpreting the coefficients in a standard reaction function as the weights that the fed attaches to its policy objectives first the monetary policy decision may not be represented accurately by an aggregate reaction function one that models the fed as a whole because there are twelve voting members on the fomc chappell havrilesky and mcgregor 10 have recently addressed this issue by employing a disaggregated set of reaction functions the second problem with interpreting reaction function coefficients as the weights the fed places on its policy objectives is that this interpretation implicitly assumes structural stability of the underlying macroeconomy abrams froyen and waud 1 31 acknowledge this shortcoming when they state coefficients from estimated reaction functions do not provide direct information on policymaker utility functions rather than being the solution to an unconstrained optimization dependent only on policymaker preferences reaction functions are the output of a constrained maximization where the constraints are the reduced form equations that characterize

economic consequences of the home appliance eco point program in japan a dynamic discrete choice approach this study combined a dynamic discrete choice model for air conditioner replacement decisions with an inter industry model in order to evaluate the economic impact of japan s home appliance eco poi