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This thesis investigates the political economy of partisan politics, elections and central bank independence.. The first chapter, 'Partisan Business Cycles and Central Bank Independence,' is an empirical investigation of how independent central banks affect the existence of partisan inflation cycles. No systematic evidence is found of any consistent link between the degree of central bank independence and the existence of partisan cycles in inflation·data; indeed, some of the evidence indicates that partisan differences in inflation are more noticeable in nations with more independent central banks.. The subsequent chapter, 'Elections and Central Bank Independence,' builds on these results to investigate the impact of electoral timing and central bank independence on ip.flation outcomes. It is hypothesised that inflation expectations under an independent central bank will be lower than under politically determined inflation. As inflation expectations are a significant factor in decision-making, higher central bank independence is expected to have a negative marginal effect on inflation in the period immediately following an election. Evidence is found of such an effect; the duration is sensitive to whether an incumbent party or challenger wins an election as well as the time period under consideration. The final chapter, 'Wage Bargaining, Politically-Induced Inflation Uncertainty and Central Bank Independence: An Experimental Investigation,' studies bargaining in which payoffs are affected by the infl~ionrate. The purpose of this chapter is to '3.nalyse the effect ofpolitically-induced inflation uncertainty on wage bargaining, and the effect of reducing this uncertainty by granting political independence to the central bank. Average,agreements are typically close to the expected value of inflation in most treatments, although the variance is large. Switching from politically-determined inflation to an independent central bank has no significant impact on average agreements even if the independent central bank pursues inflation lower than the expected value under politics. Agreements are influenced by factors including bargaining power and past agreements. |
