Political support for anti-inflationary monetary policy

Debora Di Gioacchino, Sergio Ginebri and Laura Sabani
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Sergio Ginebri: University of Molise, Italy, Postal: University of Molise, Italy

International Journal of Finance & Economics, 2004, vol. 9, issue 2, 187-200

Abstract: We model a two-party representative democracy with citizen-candidate in which the leader is elected while the central-banker is appointed by the leader. Assuming that fiscal policy is 'more important' than monetary policy, we show that, if some individuals who dislike inflation get organized in a lobby and offer campaign contribution to the party that proposes a zero-inflation policy, then even if the majority of the population, as well as the majority of party-members, favour inflation, no inflation results in equilibrium. The paper provides a political economy explanation of the role played by financial interest groups in providing political support to anti-inflationary monetary policy. Copyright © 2004 John Wiley & Sons, Ltd.

Date: 2004
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DOI: 10.1002/ijfe.241

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