Political Business Cycles and Inflation Stabilization

Vitor Castro and Francisco Veiga

No 9/2002, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: When the choice of the nominal anchor and timing of inflation stabilization is analyzed with models of political business cycles, there is room for political opportunism of policymakers. The different business cycles associated with exchange rate-based (ERBS) and money-based stabilizations (MBS) imply that the decision regarding the timing and nominal anchor of stabilization may be affected by the timing of elections. Namely, an opportunistic policymaker is more likely to implement an ERBS than a MBS before elections, while the opposite happens after elections. Empirical results obtained when estimating a multinomial logit model for a sample of 35 stabilization programs implemented in chronic inflation countries clearly support this hypothesis.

Keywords: Inflation stabilization; nominal anchors; political business cycles. (search for similar items in EconPapers)
JEL-codes: E31 E63 (search for similar items in EconPapers)
Date: 2002
New Economics Papers: this item is included in nep-dcm, nep-ifn and nep-pol
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Citations: View citations in EconPapers (3)

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Journal Article: Political business cycles and inflation stabilization (2004)
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