pareto improving campaign finance policy this paper argues that campaign finance policy in the form of contribution limits and matching public financing can be pareto improving even under very optimistic assumptions concerning the role of campaign advertising and the rationality of voters the optimistic assumptions are that candidates use campaign contributions to convey truthful information to voters about their qualifications for office and that voters update their beliefs rationally on the basis of the information they have seen the argument also assumes that campaign contributions are provided by interest groups and that candidates can offer to provide policy favors to attract higher contributions

euro dollar real exchange rate dynamics in an estimated two country model an assessment abstract several theoretical contributions using two country models have combined alternative forms of pricing under nominal rigidities with different asset market structures to explain real exchange rate dynamics we estimate a two country model using data for the united states and the euro area and study the importance of such alternative assumptions in fitting the data a model with local currency pricing and incomplete markets does a good job in explaining real exchange rate volatility and fits the dynamics of domestic variables well the complete markets assumption delivers a similar fit only when the structure of shocks is rich enough

political risk and the expectations hypothesis abstract this paper develops and empirically supports using 3 and 6 month interest rates a theory that political risk can explain the shifting term premia found in u s data we find that incorporating these political regime shifts yield results that support the expectations hypothesis

money politics and the post war business cycle abstract the political economy literature has enshrined as stylized fact the view that lower inflation and temporarily lower growth follow the election of republican presidents and has emphasized political manipulation of monetary policy as an explanation support for the monetary explanation comes in econometric work that largely ignores identification issues that dominate the literature on measuring the effects of monetary policy we generalize a standard vector autoregression framework to accommodate discrete political party variables we find almost no support for the view that political effects on the macroeconomy operate through monetary policy and only weak evidence that political effects are significant at all

some talk money in politics a partial review of the literature the financing of political campaigns is an area of active scholarly study i review some of the recent literature and discuss important methodological issues that arise in empir ical research on campaign expenditures and campaign contributions the effects of campaign expenditures and advertising on candidate and ballot measure elections are summarized as are the impacts of contributions on contributors welfare many states have changed their campaign finance laws in the past few years and i describe work that exploits variations in these laws a discussion of the strategies used by interest groups to allocate their campaign contributions provides insights into contributors motives

competition policy for elections do campaign contribution limits matter this paper examines whether campaign contribution restrictions have consequences for election outcomes states are a natural laboratory to examine this issue we analyze elections to assemblies from 1980 to 2001 and determine whether candidates vote shares are altered by changes in state campaign contribution restrictions we find that limits on giving narrow the margin of victory of the winning candidate limits lead to closer elections for future incumbents but have less effect on the margin of victory of incumbents who passed the campaign finance legislation we also find some evidence that contribution limits increase the number of candidates in the race

mixed signals central bank independence coordinated wage bargaining and european monetary union plans for the european monetary union emu are based on the conventional postulate that increasing the independence of the central bank can reduce inflation without any real economic effects however the theoretical and empirical bases for this claim rest on models of the economy that make unrealistic information assumptions and omit institutional variables other than the central bank when signaling problems between the central bank and other actors in the political economy are considered we find that the character of wage bargaining conditions the impact of central bank independence by rendering the signals between the bank and the bargainers more or less effective greater central bank independence can reduce inflation without major employment effects where bargaining is coordinated but it can bring higher levels of unemployment where bargaining is less coordinated thus currency unions like the emu may require higher levels of unemployment to control inflation than their proponents envisage they will have costs as well as benefits and these will be unevenly distributed among and within the member nations depending on the changes they induce in the status of the bank and of wage coordination

the political viability of rule based monetary policy we have estimated two models explaining political support for the president as a function of economic performance one model reflects the assumption characterizing most of the literature that voters indiscriminately punish inflation and unemployment without regard to the tradeoffs between them the other represents a more demanding conception of voter sophistication about macroeconomic possibilities and about control of the money supply while the data do not unambiguously designate a best model of behavior the sophisticated voter hypothesis performs as well as the naive voter hypothesis in the context of our study clearly this result is subject to the usual econometric caveats including possible misspecification of the model multicollinearity among independent variables etc however there is no particular reason to believe that these problems should favor one model as opposed to the other thus while we cannot conclude that voters really think in terms of rates of growth of velocity and natural output we can question the conventional wisdom that consistent rule based monetary policies may not be politically viable

a long history of fomc voting behavior we devise and apply a method for estimating monetary policy reaction functions for individual members of the federal open market committee fomc of the federal reserve our method uses members votes on the monetary policy directive in fomc meetings as the key source of data on individual preferences the analysis provides a ranking by preference for ease for 84 fomc members who served during the 1966 1996 period

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

side effects of campaign finance reform because campaign finance reform is usually motivated by the concern that existing legislation cannot effectively prevent campaign contributions to buy favors this article assumes that contributions influence political decisions but given that it is also widely recognized that interest groups achieve influence by providing political decision makers with policy relevant information we also assume that lobbies engage in non negligible informational lobbying we focus on a single political decision to be taken and offer a simple model in which the optimal influence strategy is a mixture of both lobbying instruments our main result is to show that campaign finance reform may have important side effects it may deter informational lobbying so that less policy relevant information is available and as a result political decisions become less efficient jel c72 d72

testing the satisficing version of the political business cycle 1905 1984 this paper develops a test of the satisficing version of the political business cycle previous tests have focused on maximizing models of political behavior and are not sufficiently general to test for satisficing behavior using annual u s data for the period 1905 to 1984 we find evidence supporting the satisficing version of the political business cycle model but we reject the maximizing version in accordance with the satisficing hypothesis we find that increasing inflation or unemployment and decreasing monetary base growth in the third year of a presidential term are followed typically by reversals during the election year

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

an experimental study of alternative campaign finance systems transparency donations and policy choices we experimentally study the transparency effect of alternative campaign finance systems on donations election outcomes policy choices and welfare three alternatives are considered one where donors preferences and donations are unobserved by the candidate and public one where they are observed by the candidate but not the public and one where they are observed by all we label them full anonymity fa partial anonymity pa and no anonymity na respectively we find that in na and pa candidates consistently respond to donations by choosing policies favoring the donors fa in contrast is the most successful in limiting the influence of donations on policy choices donors benefit greatly from the possibility of donations whereas social welfare may be harmed in some treatments to our knowledge this article is the first to investigate the effect of different campaign finance systems distinguished by their transparency level jel d72

political contribution caps and lobby formation theory and evidence abstract the perceived importance of special interest group money in election campaigns motivates widespread use of caps on allowable contributions we present a bargaining model in which the effect of a cap that is not too stringent on the amount a lobby can contribute improves its bargaining position relative to the politician it thus increases the payoff from lobbying which will therefore increase the equilibrium number of lobbies when lobby formation is endogenous caps may then also increase aggregate contributions from lobbies and increase politically motivated government spending we present empirical evidence from u s states that support various predictions of the model we find a positive effect on the number of pacs formed from enacting laws constraining pac contributions moreover the estimated effect is non linear as predicted by the theoretical model very stringent caps reduce the number of pacs but as the cap increases above a threshold level the effect becomes positive contribution caps in the majority of u s states are above this threshold

interest groups and the electoral control of politicians abstract we develop a model of interest group influence in the presence of repeated electoral competition in each period of the game an interest group attempts to buy an incumbent s policy choice and a voter chooses whether to replace the incumbent with an unknown challenger the voter faces a tension between retaining good politician types and rewarding past performance the model predicts that above average incumbents face little discipline but others are disciplined increasingly and re elected at a higher rate as the interest group becomes more extreme extensions of the model consider term limits long lived groups and multiple groups

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

agent heterogeneity and consensual decision making on the federal open market committee the consensual aspects of decision making are essential for understanding policy made by administrative organizations that take the form of a commision or board consensual decision making reflects the degree of policy cohesion exhibited by high level officials within administrative organizations it is proposed here that this type of behavior may differ between heterogeneous agents the federal open market committee fomc of the federal reserve system serves as a salient setting for testing these propositions in a time series context the empirical results indicate that major intra institutional differences exist between board of governor bog and regional bank president rbp members of the federal open market committee fomc regarding consensual behavior in terms of policy decision making the econometric evidence clearly demonstrates that the consensual behavior of these agents are fundamentally different from one another this in turn has important implications for the study of other commission and board policy making bodies that consist of agents who are not all homogeneous

a model of candidate location when one candidate has a valence advantage that under some fairly weak assumptions for all levels of the valence advantage the advantaged candidate chooses a more moderate position than the disadvantaged candidate empirical studies of congressional elections by fiorina 1973 and ansolabehere snyder and stewart 2001 support this result d owns 1957 seminal work presents a puzzle for scholars of u s elections why do candidates not converge to the median voter one of the best explanations is that the candidates themselves have ideological preferences as calvert 1985 and wittman 1977 1983 have shown when candidates have such preferences and they are sufficiently uncertain about the preferences of the median voter then they do not converge although they may moderate their positions from their ideal point the basic version of the calvert wittman model however does not account for another basic fact of u s elections often one of the candidates has an advantage due to a nonpolicy factor such as incumbency greater campaign funds better name recognition superior charisma superior intelligence and so on stokes has dubbed such factors valence factors and he has noted their importance in u s elections stokes 1963 1992 1 in this article i extend the basic calvert wittman model by giving one candidate a valence advantage over the other i show that if the valence characteristics of the candidates are approximately equal then when a candidate s valence advantage increases this causes her to move toward the

the unemployment rate consequences of partisan monetary policies economists and political scientists have identified several ways in which political motivations and institutional arrangements can affect macroeconomic policymaking one way is described by the political business cycle model 42 37 in which vote seeking politicians manipulate the path of the economy to secure unsustainably favorable conditions at election times variants of this model have been widely tested with limited success a second channel for political impacts comes through partisan policy changes brought about by electoral turnover the pathbreaking work in this literature includes the contributions of hibbs 30 31 32 33 and beck 11 these works have focused on the empirical issue of how unemployment rates vary under democratic and republican presidents in the u s and have found strong support for the proposition that unemployment rates decline under democratic administrations a third phenomenon has been studied primarily by economists and concerns the credibility problem faced by a central bank selecting money growth rates models of the credibility problem 8 21 describe a setting in which the central bank and the public interact by respectively choosing actual and expected money growth rates in a variant of the prisoners dilemma this interaction can result in excessive inflation

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

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

interest groups campaign contributions and probabilistic voting this essay develops a simple model to analyze the impact of campaign contributions on electoral policy decisions of candidates for office interest groups here are firms that select contributions under the assumption that candidates policies and opposing groups donations remain unaltered candidates however recognize that their policy choices affect contributions campaign contributions are used by candidates to affect policy oriented voters perceptions of candidates positions in this framework the introduction of campaign contributions may affect candidates electoral policies and if they do then they benefit surely exactly one of the two interest groups

the international economy as a constraint on u s macroeconomic policymaking international economic factors increasingly influence american trade and exchange policy and interdependence also circumscribes the autonomous choice of domestic policies but the growing concern of organization for economic cooperation and development oecd policymakers over the potential for macroeconomic policy coordination to enhance national as well as world welfare implies that international economic relations present opportunities rather than constraints under some circumstances this suggests that understanding domestic economic policy choice within its international context involves not only how policy choices are made within the bounds of international constraints but also when countries might cooperate to modify the constraints themselves this research looks to four important historical cases for information on these questions the first three are the series of cumulating crises in the international monetary system during the 1960s and early 1970s the fourth is the energy supply shock of 1973 and the recession that followed the article describes the process of policy selection in each of these cases contrasting domestic versus international premises for policy choice the economics literature has emphasized the magnitude of domestic welfare gains available from coordinated national economic policies although the cases considered here do not contradict the importance of payoffs they underline the corresponding role of political economic and strategic uncertainty in conditioning elites policy choices

partisan monetary policies presidential influence through the power of appointment we investigate the channels through which partisan influence from a presidential administration could affect monetary policy making influence could be a result of direct presidential pressure exerted on members of the federal open market committee fomc or it could be a result of partisan considerations in presidential appointments to the board of governors to investigate these two channels of influence we devise and apply a method for estimating parameters of monetary policy reaction functions that can vary across individual members of the fomc our results suggest that the appointments process is the primary mechanism by which partisan differences in monetary policies arise

the economic consequences of political donation limits the economic consequences of limits on political donations depend on the degree of political competition donors who are ideologically aligned with candidates decide how much to contribute to their own candidate they may benefit from rent seeking by their own candidate but dislike rent seeking by the opposition increased rent seeking by politicians thus generates campaign contributions for themselves but also mobilizes donations to the opposing candidate potentially to a greater extent this latter effect acts as a deterrent to rent seeking when contributions finance electoral campaigns and positively affect election chances when political competition is low incumbent donors outnumber opposition donors and limits reduce rent seeking when political competition is high donors are equalized and laissez faire reduces rent seeking consistent with these hypotheses data from the us states suggest that limits are associated with better policies and stronger growth performance at low levels of political competition whilst laissez faire is preferred when political competition is high

does negative advertising affect giving behavior evidence from campaign contributions abstract this paper contributes to a growing literature that explains why individuals contribute to political campaigns we build a panel dataset that follows contributors from primary to general elections to quantify the persistence of giving in political contests those who gave to winning candidates in the primary were most likely to contribute again in the general election next we use an instrumental variable strategy to document that within party negative advertising decreases the probability that individuals contribute to their preferred party in the general election regardless of whether they initially contributed to a winning or losing primary candidate

presidential influence on the federal reserve in the 1970 s this research examined presidential influence on federal reserve monetary policy in the 1970s a reaction function for the change in the federal funds rate was estimated and then checked to determine whether that reaction function shifted at politically important points the two political influences studied were elections and administration the federal reserve did not appear to manipulate the money supply in 1972 to aid president nixon s reelection the reaction function shifted between the nixon and ford administrations it did not shift with the ascension of carter and it did not shift with the replacement of chairman arthur burns by chairman william miller

the federal reserve system and control of the money supply in the 1970s this paper addresses the question of whether the federal reserve system in the 1970s used the money supply as its predominant intermediate target of policy l did the federal reserve control the money supply in the 1970s where control is defined as requiring that the behavior of the money supply accurately reflect the stance of monetary policy desired by the federal open market committee fomc of the federal reserve system the question just posed is approached through an examination of the system s operating procedures for implementing monetary policy in the 1970s what intermediate target of policy was the fomc trying to achieve as inferred by its choice of operating procedures 2

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

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

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 swing voter s curse the authors analyze two candidate elections in which some voters are uncertain about the realization of a state variable that affects the utility of all voters they demonstrate the existence of a swing voter s curse less informed indifferent voters strictly prefer to abstain rather than vote for either candidate even when voting is costless the swing voter s curse leads to the equilibrium result that a substantial fraction of the electorate will abstain even though all abstainers strictly prefer voting for one candidate over voting for another copyright 1996 by american economic association

strategic campaigns and redistributive politics the article investigates strategic informative campaigning by two parties when politics concern redistribution voters are uncertain about whether parties favour special groups parties will target campaigns on groups where most votes are gained by informing about policies in equilibrium campaigning will be most intensive in groups where the uncertainty is largest and where voters are most mobile most likely to vote most receptive to campaigns and relatively uninformed initially these groups will become more informed about policy parties will therefore gain more votes by treating these groups well so these groups will gain from strategic campaigning welfare effects are assessed

campaign spending with office seeking politicians rational voters and multiple lobbies abstract i introduce a microfounded model of campaign finance with office seeking politicians a continuum of voters and a large number of heterogeneous lobbies lobbies make contributions to politicians according to a common agency framework politicians use contributions to finance their electoral expenditures voters are not fooled by electoral expenditures they are influenced in a way that is consistent with the equilibrium behavior of lobbies and politicians the model is used to i determine the relation between campaign spending and the deviation from the median voter s preferred policy ii show the informational value of lobbies contributions iii evaluate the welfare implications of restricting campaign spending and iv interpret the empirical finding that campaign expenditures have a very low effect on election outcome although in equilibrium advertising provides voters with useful information under reasonable parameter values a ban on campaign contributions makes the median voter better off journal of economic literature classification numbers d72 d82 m37

electoral competition with informed and uninformed voters i present a model of electoral competition in which candidates raise campaign contributions by choosing policies that benefit interest groups and then expend those contributions to influence voters who are uninformed about the policies informed voters however vote based on those policies so candidates face a trade off between choosing a policy to generate funds to attract the uninformed vote and choosing a policy to attract the informed vote electoral equilibria are characterized for two categories of policies particularistic and collective in the case of particularistic policies the equilibrium policies of the candidates are separated if the proportion of uninformed voters is sufficiently high and the degree of separation is an increasing function of that proportion the model is extended to include the public financing of elections and incumbency advantages for the case of collective policies the candidates locate at the median of the ideal points of the informed voters and contributions are zero

soft money and campaign finance reform we analyze special interest influence on policy when political contributions are capped but the regulation contains soft money loopholes the politician chooses between two policy options we define special interest influence as the probability the politician chooses the policy he would not have chosen in the absence of contributions any binding cap reduces special interest influence but the effect may be nonmonotonic a ban on contributions can result in greater special interest influence than a binding but nonzero cap the results may also have implications for the policy response to the 2010 supreme court ruling on citizens united v fec