International Relations at TU München

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Study with flashcards and summaries for the course International Relations at the TU München

Exemplary flashcards for International Relations at the TU München on StudySmarter:

 The Electoral Model 

Exemplary flashcards for International Relations at the TU München on StudySmarter:

Keynesian revolution

Exemplary flashcards for International Relations at the TU München on StudySmarter:

Central Bank Independence 

Exemplary flashcards for International Relations at the TU München on StudySmarter:

The Partisan Model 

Exemplary flashcards for International Relations at the TU München on StudySmarter:

Governments can manage aggregate demand to lower unemployment 

Exemplary flashcards for International Relations at the TU München on StudySmarter:

Why do governments choose monetary policy autonomy over exchange rate stability? 

Exemplary flashcards for International Relations at the TU München on StudySmarter:

What drives the decision against monetary policy autonomy? 2

Exemplary flashcards for International Relations at the TU München on StudySmarter:

Independent Central Banks (honestly?)

Exemplary flashcards for International Relations at the TU München on StudySmarter:

Central Banks (definition)

Exemplary flashcards for International Relations at the TU München on StudySmarter:

Time-Inconsistency of Monetary Policy

Exemplary flashcards for International Relations at the TU München on StudySmarter:

society-centered approach to governments monetary and exchange rate policies 

Exemplary flashcards for International Relations at the TU München on StudySmarter:

Why has monetary policy become a viable policy goal? 

(role of ideas)

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Exemplary flashcards for International Relations at the TU München on StudySmarter:

International Relations

 The Electoral Model 

– franchise extension (more people have the right to vote) 

>working class more concerned about unemployment than inflation 

political business cycle 

-monetary policy as means to manage the economy (esp before elections) > belief that good economic conditions increase probability of reelection

> esp powerful if veto players make implementing fiscal policy difficult 

International Relations

Keynesian revolution

starting observation: economies can get stuck at high levels of unemployment

reason: investment decisions by firms are fragile > market imperfection regarding the aggregate demand for goods 

International Relations

Central Bank Independence 

– government delegates monetary policy (to a governing board)

– government is restricted from interfering in decisions 

– government cannot make monetary policy decisions anymore 

International Relations

The Partisan Model 

Philips curve: trade-off between unemployment and inflation (in short-term)

argument: 

– different parties pursue different policy goals 

– parties pursue policy goals in line with their core constituency 

– assume pocketbook voting – people vote for the better deal 

left: low unemployment at expense of exchange rate stability 

right: low inflation, allow fixing exchange rates 

International Relations

Governments can manage aggregate demand to lower unemployment 

direct fiscal policy: government raises demand for goods through expenditures 

indirect monetary policy: increase money supply > lower interest rates > lower costs of investing > more aggregate demand > lower unemployment 

International Relations

Why do governments choose monetary policy autonomy over exchange rate stability? 

1. electoral model (franchise extension and political business cycles) 

2. partisan model (philips curve)

3. sectoral model (frieden 1991) 

International Relations

What drives the decision against monetary policy autonomy? 2

– political opportunism

> proportional electoral systems because electoral shifts are smaller

> large electoral margins because no need to tip the scale 

> long time horizon because benefits emerge in the long run 

– government partisanship

> center-right parties because electorates prefer low inflation 

> left parties because of reputation building and “political capital” in crises 

– democracy because low inflation interests are better represented 

International Relations

Independent Central Banks (honestly?)

– appointment of governing board 

– term duration and dismissal of directors 

– budgetary autonomy of the central bank 

– performance incentives for directors 

– government veto power over monetary policy instruments 

– government formulation of policy goals 

– indirect influence of policy makers 

International Relations

Central Banks (definition)

bureaucratic institutions charged with managing the supply of credit to the economy

International Relations

Time-Inconsistency of Monetary Policy

– policy makers announce low inflation policies 

> expectation of low inflation among parties in wage bargaining 

> minimal increase in nominal wages (constant real wages)

> policy makers renege on low inflation promise to lower unemployment 

> wage bargaining parties expect policy makers could break their promise 

> result: no improvement of economic outcomes, only higher inflation 

International Relations

society-centered approach to governments monetary and exchange rate policies 

politicians responses to interest group demands 

– material interests: winners and losers 

– idea: new ways of economic thinking 

political institutions 

International Relations

Why has monetary policy become a viable policy goal? 

(role of ideas)

neoclassical economics – 

long-term unemployment not possible > labor markets adjust via changes in wages 

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