Alt (2002)- Comparative Political Economy- Credibility, Accountability, and Institutions

Alt (2002)- Comparative Political Economy- Credibility, Accountability, and Institutions

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Comparative Political Economy: Credibility, Accountability, and Institutions James E. Alt (2002) Alt, James E. 2002. “Comparative Political Economy.” In Political Science: The State of the Discipline, edited by Ira Katznelson and Helen V. Milner. New York: W.W. Norton. Section 1: Intro THESIS: “All these suggested institutional innovations in fiscal and monetary policy grew out of increasingly elaborate political-economic models of politicians responsible for economic outcomes’ being accountable to and seeking reelection from an electorate that votes retrospectively.” 147 1. Belief that “…independent central bank would produce credible low-inflation monetary policy” led to Euro Central Bank 2. Suggestion that “‘transparent’ fiscal institutions would enhance accountability and bring about desirable affects on policy outcomes” 3. Concern for fiscal discipline lay behind push for balanced budget Amendment in US in ‘90’s “Out of these contributions comes an increased understanding of how markets and and voters exercise their power to control politicians who hope to be seen as competent in carrying out policy.” “New models involve control of politicians by many actors (voters or consumers) engaged in strategic interaction” 148 “…the results demonstrate the importance of relating policy outcomes to not only economic fundamentals but also the ideological or redistributive goals of political parties and interest groups and the institutional context in which policy is made.” 148 Section 2: The Political Economy of Institutions “The piece of political economy research reviewed below analyzes how the credibility of monetary institutions and transparency of fiscal insttituions affect policy and outcomes like the inflation rate and scale or indebtedness of the government.” DEFINE: INSTITUTIONS - “The central concept, institutions, refers to rules, procedures, norms, or conventions designed self-consciously to determine “w3ho has the power to do what, when.” Political economy focuses on how political and economic institutions constrain, direct, and reflect individual behavior.” 149 “…Institutions increase predictability, reduce uncertainty, or induce stability in human interactions.” Section 3: Monetary Policy: Central Banks, Labor Markets, and Parties “PolEc research on monetary policy has been dominated by the time consistency problem.” 151 DEFINE: TIME CONSISTENCY PROBLEM “As Kydland and Prescott (1977) showed, policymakers with the discretion to set monetary policy are are tempted to expand the money supply in response to adverse
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shocks, but the expectation of this temptation (typically among labor market participants) produces a positive-inflation bias that could be avoided with a simple monetary rule. Barro and Gordon (1983) point out that unless policymakers are
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Alt (2002)- Comparative Political Economy- Credibility, Accountability, and Institutions

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