This article employs a duration analysis approach to empirically investigate whether political fractionalization leads to delayed fiscal stabilizations. Using a broad sample of both developed and developing countries for the period 1975-2011, we consistently find strong evidence that political fractionalization is significantly associated with longer delays in stabilizing high deficits. In particular, political fractionalization has a greater impact on delays in periods of macroeconomic distress. We also show that, while the fractionalization of government parties delays fiscal stabilization, the fractionalization of opposition parties tends to facilitate fiscal stabilization.
The Granger-causal relationship between the size and dispersion of fluctuations in subcomponents of the U.S. Consumer Price Index (CPI) is examined using both in-sample and outof-sample tests and data from January 1968 to December 2008. Strong in-sample evidence is found for feedback between median inflation and price dispersion; the evidence for Grangercausation from median inflation to price dispersion remains strong in out-of-sample testing, but is less strong for Granger-causation in the opposite direction. The implications of these results for the variety of price-level determination models in the literature are discussed.
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