Societal Preferences, Partisan Agents, and Monetary Policy Outcomes

Abstract

If different producer groups have divergent interests concerning macroeconomic policies, how do societal preferences translate into state policy outcomes? I develop and test a party-as-agent framework for understanding the importance of societal preferences with regard to monetary policy under capital mobility. Following the principal-agent model, political parties function as agents for different societal principals. Rightist parties tend to represent internationally oriented business groups with preferences for monetary convergence, while leftist parties do the same for domestically oriented groups preferring monetary autonomy under capital mobility. I present statistical evidence showing that OECD leftist governments have been associated with more monetary autonomy and currency variability than their rightist counterparts, even after controlling for basic economic indicators such as inflation. The statistical evidence also shows that societal group size tends not to explain either autonomous monetary policy choices or exchangerate stability. Thus even large and wealthy societal groups may be unable to obtain their preferred policy outcome when their respective partisan agents do not hold government power.

The impact of societal preferences on national monetary policy outcomes: A revival of economic pluralism

“…Bearce 2003;Bjørnskov 2008;Potrafke 2009). They assume that governments are mainly motivated by policy-seeking goals and always try to implement their favored policies.…”

“…This paper aims to shed light on the translation of societal preferences into policy outcomes with focus on exactly this dilemma of monetary policy. Consequently, this analysis aims to answer the following research question: (Bearce 2003). Bearce argues in his influential paper that the ideology of government parties is the central determinant for the decision in the trade-off between monetary policy autonomy and exchange-rate stability.…”

Religious Affiliation and Individual International-Policy Preferences in the United States

“…We suggest that, when the 2003 ISSP survey is completed and compiled, future studies should extend both across time to detect possible shifts in cultural norms and cross-country differences. In addition, future research should also focus on the mechanism through which religious beliefs and religious participation affect international-policy preferences (perhaps along the lines posited by Montgomery, 1996) as well as the process by which these preferences move toward policy outcomes (such as Bearce, 2003). This paper benefited greatly from the comments of Marc von der Ruhr, Jim McGibany, Larry Iannaccone, Rob Toutkoushian, and two anonymous referees.…”

“…The international relations literature continues to develop models of how collective preferences of societal actors result in state policy outcomes, and offers much promise in understanding how growing religious participation and evangelicalism may constrain international economic policymaking. (See, for example, Bearce, 2003 for a review of the theory and evidence of how societal preferences affect monetary policy outcomes.) Of equal interest is the question of how the beliefs of various denominations are translated into social preferences of their adherents (see, for example, Johnston, 2001).…”

The Political Economy of Exchange Rates

“…In many instances, interest group preferences are relevant inasmuch as they are mediated through political parties (Bearce 2003). Some have argued that centrist and rightist parties are likely to support fixed regimes as their business constituencies benefit from the credible commitment to low inflation, and from the expansion of trade and investment made possible by fixing (Simmons 1994).…”