Mixed signals: central bank independence, coordinated wage bargaining, and European Monetary Union

"Die Konzepte für die Europäische Währungsunion basieren auf dem allgemeinen vertretenden Postulat, dass mit größerer Unabhängigkeit der Zentralbank die Inflation ohne reale ökonomische Effekte verringert werden kann. Allerdings beruht die theoretische wie empirische Basis für diesen Anspruch auf Modellvorstellungen einer Volkswirtschaft, die auf unrealistischen Annahmen der Bedeutung von Informationen beruhen und institutionelle Variablen - mit Ausnahme der Zentralbank - außer acht lassen. Wird allerdings die wechselseitige Wahrnehmung und Interpretation von Informationen ('signaling problems') zwischen Zentralbank und den anderen Akteuren in der politischen Ökonomie in die Analyse einbezogen, dann ist feszustellen, dass die Art der Lohnfindung die Intensität der Auswirkungen der Zentralbankunabhängigkeit beeinflusst je nachdem, wie wirksam der Zentralbank und den Tarifpartnern vermittelt ist. Im Falle koordinierter Tarifverhandlungen kann eine größere Unabhängigkeit der Zentralbank die Inflation in der Tat ohne größere Beschäftigungseffekte vermindern, im Falle unkoordinierter Tarifverhandlungen führt dies allerdings zu einem höheren Niveau der Arbeitslosigkeit. Daraus leitet sich die Überlegung ab, dass eine Währungsunion vom Typ 'Europäische Währungsunion' ein höheres Maß an Arbeitslositkeit einfordert, um die Inflation unter Kontrolle zu halten, als es ihre Befürworter erwarten. Bei den sich dann einstellenden Vor- und Nachteilen werden die Nachteile zwischen und innerhalb der Mitgliedsstaaten ungleich verteilt sein, abhängig von dem letztendlich verwirklichten Grad der Unabhängigkeit der Zentralbank und der Form der Lohnfindung." (Autorenreferat)"Plans for European Monetary Union are based on the conventional postulate that increasing the independence of the central bank can reduce inflation without any real economic effects, However, the theoretical and empirical bases for this claim rest on models of the economy that make unrealistic information assumptions and omit institutional variables other than the central bank. When the signaling problems between the central bank and other actors in the political economy are considered, we find that the character of wage bargaining conditions the impact of central bank independence by rendering the signals between the bank and the bargainers more or less effective. Greater independence can reduce inflation without major employment effects where bargaining is coordinated, but it brings higher levels of unemployment where bargaining is uncoordinated. Thus, currency unions like the EMU may require higher levels of unemployment to control inflation than their proponents envisage; they will have costs as well as benefits, costs which will be distributed unevenly among and within the member nations based on the changes induced in the status of the bank and of wage coordination." (author's abstract

Modeling History Dependence in Network-Behavior Coevolution

Spatial interdependence--the dependence of outcomes in some units on those in others--is substantively and theoretically ubiquitous and central across the social sciences. Spatial association is also omnipresent empirically. However, spatial association may arise from three importantly distinct processes: common exposure of actors to exogenous external and internal stimuli, interdependence of outcomes/behaviors across actors (contagion), and/or the putative outcomes may affect the variable along which the clustering occurs (selection). Accurate inference about any of these processes generally requires an empirical strategy that addresses all three well. From a spatial-econometric perspective, this suggests spatiotemporal empirical models with exogenous covariates (common exposure) and spatial lags (contagion), with the spatial weights being endogenous (selection). From a longitudinal network-analytic perspective, we can identify the same three processes as potential sources of network effects and network formation. From that perspective, actors\u27 self-selection into networks (by, e.g., behavioral homophily) and actors\u27 behavior that is contagious through those network connections likewise demands theoretical and empirical models in which networks and behavior coevolve over time. This paper begins building such modeling by, on the theoretical side, extending a Markov type-interaction model to allow endogenous tie-formation, and, on the empirical side, merging a simple spatial-lag logit model of contagious behavior with a simple p-star logit model of network formation, building this synthetic discrete-time empirical model from the theoretical base of the modified Markov type-interaction model. One interesting consequence of network-behavior coevolution--identically: endogenous patterns of spatial interdependence--emphasized here is how it can produce history-dependent political dynamics, including equilibrium phat and path dependence (Page 2006). The paper explores these implications, and then concludes with a preliminary demonstration of the strategy applied to alliance formation and conflict behavior among the great powers in the first half of the twentieth century

Network Selection and Path-Dependent Coevolution

Scholars have increasingly become aware that actors’ self-selection into networks (e.g., homophily) is an important determinant of network-tie formation. Such self-selection adds methodological complexity to the empirical evaluation of the effects of network ties on individual behavior. Moreover, the endogenous network formation implies that network-tie structures and actors’ behavior “coevolve” over time. Therefore, in longitudinal network studies, it is very crucial for scholars to understand the nature of coevolutionary dynamics in the data, in order to explain the network-formation and the behavioral-decision-making mechanisms accurately. In this project, we claim that one of the most important aspects of the coevolutionary dynamic is its connection with history dependence. By history dependence, we primarily focus on what Page (2006) defines as “phat” and path dependence. We first establish theoretically that systems with coevolution can easily generate multiple equilibria (i.e., the steady states of the system), using a simple Markov type-interaction model that allows for endogenous tie formation. The potential of multiple equilibria posits an important and very difficult empirical question--how sensitive are equilibrium distributions (over types) to the past states? More simply put, to what extent does history matter? What is at stake in this question is not trivial. If history matters for an equilibrium attained in the society, then we can also analyze the potential policy interventions that could change the path of the social process such that it would lead to a socially optimal equilibrium. As for the empirical strategy, we start with developing a discrete-time Markov model, combining a spatial-logit and p-star model to evaluate the empirical significance of coevolutionary dynamics in the data. The strength of this empirical approach is in its direct connection with the theoretical Markov interaction model, and can provide a foundation for developing statistical tests for history dependence generated by coevolution

Replication data for: Participation, Veto Actors, and Policy Responsiveness in the Evolution and Reform of Health Care in Developed Democracies

This paper offers a brief account of how interest and institutional structures interact to explain the divergent evolution of developed democracies’ postwar commitments to social health-care provision. Institutions that fostered democratic participation also enhanced and balanced governmental responsiveness to inequality, economic hardship, and the population’s age-demographic structure, inducing greater effective demand for public-health-spending growth in some democracies than others. Governments also responded to these differentially rising demands for public health-care to an extent and in ways that differed depending on multiple other interactions of political-economic conditions, institutions, and interest structures. Divided or fractionalized governments, in particular, retarded policy adjustment-rates and so greatly magnified the long-run impact of the common and differing demands for public-health provision. This varying growth in public health-care spending reduced (perceived) policy efficacy and maneuverability, shifting health-policy emphases toward reform of (perceived poor-performing) existing systems. Again, interest and institutional interactions conditioned the impact of this shift across democracies. Reforms have had only limited effect on spending growth, yet likely had and will continue to have sizable distributional effects that, once again, depend on key institutional interactions such as those described above. The paper thus shows, broadly, how complex structures of political-economic interests and institutions interact to induce different policies from democratic governments facing similar challenges and, specifically, how this unfolded in developed democracies over the postwar era as an evolution from commitments to quality public health-care provision toward more conservative and narrower goals of moderating health-care costs. And it shows that battles over these choices always were and remain still primarily political battles about (re)distribution and (in)equality, and only subsidiarily about efficiency, whatever p artisan protagonists may claim

Replication data for: The Political Economy of Public Debt: An Empirical Examination of the OECD Postwar Experience through the 1990s: Electoral and Partisan Manipulation of Public Debt, 1956-90

Theoretical literature seeking to explain public-debt accumulation exploded in recent years as debt crises emerged in many nations. Empirical evaluation of political-economy theories has, however, lagged that of basic economic-conditions models. This paper joins those beginning to redress the imbalance, operationalizing and evaluating standard electoral and partisan budget-cycles arguments and their modern, rational-expectations-strategic variants. The evidence strongly suggests modification of the former and flatly rejects the latter. Electoral budget-cycles exist, but their timing is different than usually assumed. Partisan debt-effects also exist, but they run in commonly expected directions (left-deficits, right-surpluses) only when incumbents’ perceived risk of replacement by ideological competitors is high. They run in opposite directions when such replacement risk is low. The pattern contradicts recent rational-strategic models but perhaps suggests alternative, equally rational-strategic, logic for partisan manipulation of the budget

Replication data for: Modeling and Interpreting Interactive Hypotheses in Regression Analysis: A Brief Refresher and Some Practical Advice

Social scientists study complex phenomena about which they often propose intricate hypotheses tested with linear-interactive or multiplicative terms. While interaction terms are hardly new to social science research, researchers have yet to develop a common methodology for using and interpreting them. Modeling and Interpreting Interactive Hypotheses in Regression Analysis provides step-by-step guidance on how to connect substantive theories to statistical models and how to interpret and present the results

Replication data for: Electoral and Partisan Manipulation of Public Debt in Developed Democracies, 1956-1990

Theoretical literature seeking to explain public-debt accumulation exploded in recent years as debt crises emerged in many nations. Empirical evaluation of political-economy theories has, however, lagged that of basic economic-conditions models. This paper joins those beginning to redress the imbalance, operationalizing and evaluating standard electoral and partisan budget-cycles arguments and their modern, rational-expectations-strategic variants. The evidence strongly suggests modification of the former and flatly rejects the latter. Electoral budget-cycles exist, but their timing is different than usually assumed. Partisan debt-effects also exist, but they run in commonly expected directions (left-deficits, right-surpluses) only when incumbents’ perceived risk of replacement by ideological competitors is high. They run in opposite directions when such replacement risk is low. The pattern contradicts recent rational-strategic models but perhaps suggests alternative, equally rational-strategic, logic for partisan manipulation of the budget

Replication data for: Institutional and Sectoral Interactions in Monetary Policy and Wage-Price Bargaining

This chapter considers institutional complementarities at the macroeconomic level. It examines unemployment and inflation management in developed democracies, stressing the interactions of wage/price-bargaining institutional and sectoral structure with monetary-authority credibility and conservatism. It first briefly reviews the coordinated-wage/price-bargaining and central-bank-independence literatures, highlighting theoretical and empirical weaknesses engendered by their failure to consider potential interactions between these macro-institutions. It then synthesizes and extends these theories, showing how degrees of central-bank independence and of wage/price-bargaining coordination interact with each other and with the sectoral structure of bargaining to determine monetary-policymaker and wage/price-bargainer incentives. The results show credible monetary conservatism and traded-sector-led (not public-sector-led) coordinated bargaining to complement in producing low unemployment and to substitute in producing low inflation. The macroeconomic record of 21 developed democracies over 20 years of flexible exchange rates supports this synthesis and extension, which also resolves the theoretical and empirical problems arising in previous, non-interactive analyses

Replication data for: Macroeconomic Policies of Developed Democracies

This book synthesizes and extends modern political-economic theory to explain the postwar evolution of macroeconomic policy in developed democracies. Chapters II-IV study transfers, debt, and monetary/wage policy-making and outcomes, stressing that participation enhances transfer-policy responsiveness to inequality and vice versa, that policy-making veto actors retard fiscal-policy adjustments, inducing greater long-run debt-responses to all other political-economic stimuli, and that monetary policy’s nominal and real effects depend, respectively, on the broader political-economic interest-structure and on wage-price bargainers’ sectorial composition and coordination. Broadly, the book argues that these developments have exacerbated the distributional conflicts inherent in the policies to which postwar governments had committed while undermining their more-universally desired efficiency-fostering roles. Battles that once raged primarily over policies conducted within postwar-commitment frameworks now rage over the putative ‘reforms’ of the frameworks that will set the institutional rules within which democratic struggle over macroeconomic policy and free-market competition will continue. • Emphasizes theoretically the interaction of multiple political-economic institutions and interest-structures in shaping dynamic policies and outcomes and shows how to model such complexly interactive and dynamic propositions empirically and that the historical record strongly supports such specifications • Offers extensive substantive evaluation of technical empirical results complete with the many illuminating figures and tables required to interpret interactions and dynami cs • Finds very strong evidence of interesting electoral and partisan effects on strategic fiscal and monetary policies that challenges, amends, advances, and hopefully re-energizes ‘political business cycle’ theory and empirics

Replication data for: Empirical Strategies for Various Manifestations of Multilevel Data

Equivalent separate-subsample (two-step) and pooled-sample (one-step) strategies exist for any multilevel-modeling task, but their relative practicality and efficacy depend on dataset dimensions and properties and researchers' goals. Separate-subsample strategies have difficulties incorporating cross-subsample information, often crucial in time-series cross-section or panel contexts (subsamples small and/or cross-subsample information great) but less relevant in pools of independently random surveys (subsamples large; cross-sample information small). Separate-subsample estimation also complicates retrieval of macro-level-effect estimates, although they remain obtainable and may not be substantively central. Pooled-sample estimation, conversely, struggles with stochastic specifications that differ across levels (e.g., stochastic linear interactions in binary dependent-variable models). Moreover, pooled-sample estimation that models coefficient variation in a theoretically reduced manner rather than allowing each subsample coefficient vector to differ arbitrarily can suffer misspecification ills insofar as this reduced specification is lacking. Often, though, these ills are limited to inefficiencies and standard-error inaccuracies that familiar efficient (e.g., feasible generalized least squares) or consistent-standard-error estimation strategies can satisfactorily redress. subscribe to Political Analysis to access the supplementary data</a