Political Business Cycles in EU Accession Countries

This paper considers whether political business cycles existed in East European accession countries during the period 1990-9. Based on the Mundell-Fleming model expanded in Clark and Hallerberg (2000), we argue that the type of exchange rate regime and the relative independence of the central bank a...

Full description

Saved in:
Bibliographic Details
Published in:European Union politics 2002-06, Vol.3 (2), p.231-250
Main Authors: Hallerberg, Mark, de Souza, Lúcio Vinhas, Clark, William Roberts
Format: Article
Language:English
Subjects:
Banking
Business Cycles
Central bank independence
Eastern Europe
Economic and Monetary Union
Elections
Empirical research
EU accession
European Union
Exchange Rate
Exchange rate policy
Fiscal policy
Monetary Policy
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper considers whether political business cycles existed in East European accession countries during the period 1990-9. Based on the Mundell-Fleming model expanded in Clark and Hallerberg (2000), we argue that the type of exchange rate regime and the relative independence of the central bank affects the instruments governments use to influence the economy before elections. In our empirical analysis, we find that accession countries with dependent central banks and flexible exchange rates have looser monetary policies in electoral periods than in non-electoral periods. If a country has a fixed exchange rate regime, it manipulates its economy in election years through running larger budgets instead of through looser monetary policy. The presence of such cycles in Eastern Europe has implications for the introduction of the euro in EU accession countries.
ISSN:1465-1165
1741-2757
DOI:10.1177/1465116502003002005