Skip to main content Accessibility help

Multiple Hands on the Wheel: Empirically Modeling Partial Delegation and Shared Policy Control in the Open and Institutionalized Economy

  • Robert J. Franzese (a1)


The causal arguments of modern, positive political science often imply complex interactions among multiple explanatory factors. In one example from comparative and international political economy (C&IPE), sharing of monetary-policymaking control between partially autonomous central banks and politically responsive governments yields inflation as a convex combination of the rates that would have held under full-government and full-central-bank policy control. The anti-inflationary effect of central bank independence (autonomy plus conservatism: CBA) therefore depends on all political—economic variables to which central banks and governments respond differently, and, vice versa, CBA mutes the inflation effects of all such factors. Extending that logic of shared policy control to open political economies: insofar as domestic monetary authorities fix exchange rates, they effectively delegate inflation control to foreign (peg-currency) authorities, and policymakers in small and financially exposed economies must match domestic inflation to foreign (global) rates to avoid massive exchange-rate pressures. Thus, analogously, the domestic-inflation effects of fixed exchange rates and of monetary exposure depend on each other and on many other institutional and structural aspects of the domestic and foreign political economies, and, vice versa, the effects of all domestic and foreign political—economic conditions depend on degrees of exchange-rate fixity and financial openness at home and abroad. This article shows how to model such complexly interactive hypotheses empirically compactly and substantively meaningfully, and demonstrates the postwar inflation records of 21 developed democracies to favor such specifications decidedly over standard linear-additive or linear-interactive alternatives. The concluding sections discuss specific results and implications and then suggest several more potential applications of this general approach to further instances of shared policy control and other substantive contexts that induce the multiple, complex interactions characteristic of modern, positive political science in general and C&IPE especially.



Hide All
Alesina, A., and Summers, L. 1993. “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence.” Journal of Money, Credit, and Banking 25(2): 151163.
Beck, N., and Katz, J. 2001. “Random Coefficient Models for Time-Series-Cross-Section Data.” Political Methodology 2001 Working Paper. (Available from
Bernhard, W. 2002. Commitment, Continuity, and Change: Political Parties and Central Bank Independence. Ann Arbor: University of Michigan Press.
Bleaney, M. 1996. “Central Bank Independence, Wage-Bargaining Structure, and Macroeconomic Performance in OECD Countries.” Oxford Economic Papers 48:2038.
Calmfors, L., and Driffill, J. 1988. “Centralisation of Wage Bargaining and Macroeconomic Performance.” Economic Policy 6:1361.
Carlin, W., and Soskice, D. 1990. Macroeconomics and the Wage Bargain: A Modern Approach to Employment, Inflation and the Exchange Rate. Oxford: Oxford University Press.
Clark, W., Reichert, U. N., Lomas, S. L., and Parker, K. L. 1998. “International and Domestic Constraints on Political Business Cycles in OECD Economies.” International Organization 52:87120.
Cukierman, A. 1992. Central Bank Strategy, Credibility, and Independence: Theory and Evidence. Cambridge, MA: MIT Press.
Cukierman, A., Edwards, S., and Tabellini, G. 1992. “Seigniorage and Political Instability.” American Economic Review 82:537555.
Eijffinger, S. C. W., and De Haan, J. 1996. “The Political Economy of Central Bank Independence.” Special Papers in International Economics #19. International Finance Section, Department of Economics, Princeton University.
Franzese, R. 1999. “Partially Independent Central Banks, Politically Responsive Governments, and Inflation.” American Journal of Political Science 43:681706.
Franzese, R. 2001. “Institutional and Sectoral Interactions in Monetary Policy and Wage-Price Bargaining.” In Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. eds. Hall, P. and Soskice, D. Cambridge: Cambridge University Press, pp. 104144.
Franzese, R. 2002a. “Electoral and Partisan Cycles in Economic Policies and Outcomes.” Annual Review of Political Science 5:369422.
Franzese, R. 2002b. Macroeconomic Policies of Developed Democracies. Cambridge: Cambridge University Press.
Franzese, R. 2003a. “Quantitative Empirical Methods and Context Conditionality.” APSA-CP: Newsletter of the Organized Section on Comparative Politics of the American Political Science Association 14(1): 2024.
Franzese, R. 2003b. “Strategic Interactions of the ECB, Wage Bargainers, and Governments: A Review of Theory, Evidence, and Recent Experience.” In Institutional Conflicts and Complementarities: Monetary Policy and Wage Bargaining Institutions in EMU. eds. Mooslechner, P., Schuerz, M., Franzese, R. Amsterdam: Kluwer Academic Press.
Franzese, R., and Nooruddin, I. 2002. “Geographic and Partisan Bases of Representation: Distributive Politics and the Effective Number of Constituencies.” American Political Science Association Annual Meetings, Boston.
Gourevitch, P. 1986. Politics in Hard Times: Comparative Responses to International Economic Crises. Ithaca, NY: Cornell University Press.
Hall, P. 1986. Governing the Economy: The Politics of State Intervention in Britain and France. New York: Oxford University Press.
Hall, P. 2003. “Adapting Methodology to Ontology in Comparative Politics.” The Political Economist 11:17.
Hall, P., and Franzese, R. 1998. “Mixed Signals: Central Bank Independence, Coordinated Wage-Bargaining, and European Monetary Union.” International Organization 52(3): 505535.
Hall, P., and Soskice, D. 2001. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press.
Hirsch, F., and Goldthorpe, J. H., eds. 1978. The Political Economy of Inflation. Cambridge, MA: Harvard University Press.
Iversen, T. June 1998. “The Political Economy of Inflation: Bargaining Structure or Central Bank Independence?Public Choice 99:237258.
Jonsson, G. 1995. “Institutions and Macroeconomic Outcomes—The Empirical Evidence.” Swedish Economic Policy Review 2:181212.
Katzenstein, P. 1985. Small States in World Markets: Industrial Policy in Europe. Ithaca, NY: Cornell University Press.
King, G., Keohane, R., and Verba, S. 1994. Designing Social Inquiry. Princeton: Princeton University Press.
Kraus, L.B., and Salant, W.S., eds. 1977. Worldwide Inflation: Theory and Recent Experience. Washington, DC: Brookings.
Layard, R., Nickell, S., and Jackman, R. 1991. Unemployment: Macroeconomic Performance and the Labour Market. New York: Oxford University Press.
Levitt, S. 1996. “How Do Senators Vote? Disentangling the Role of Voter Preferences, Party Affiliation, and Senate Ideology.” American Economic Review 86:425441.
Lindberg, L.N., and Maier, C.S., eds. 1985. The Politics of Inflation and Economic Stagnation. Washington, DC: Brookings.
Lohmann, S. 1992. “Optimal Commitment in Monetary Policy: Credibility Versus Flexibility.” American Economic Review 82:273286.
Lohmann, S. 1998. “Federalism and Central Bank Independence: The Politics and German Monetary Policy, 1957-1992.” World Politics 50(3): 401446.
Nordhaus, W. 1975. “The Political Business Cycle.” Review of Economic Studies 42(1): 169190.
Oatley, T. 1999. “How Constraining is Capital Mobility? The Partisan Hypothesis in an Open Economy.” American Journal of Political Science 43:10031027.
Posen, A. 1995a. “Central Bank Independence and Disinflationary Credibility: A Missing Link?Brookings Papers on Economic Activity.
Posen, A. 1995b. “Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence.” NBER Macroeconomics Annual 10:253274.
Romer, D. 1993. “Openness and Inflation: Theory and Evidence.” Quarterly Journal of Economics 108:869903.
Quinn, D., and Inclan, C., 1997. “The Origins of Financial Openness: A Study of Current and Capital Account Liberalization.” American Journal of Political Science 41:771813.
Simmons, B. 1996. “Rulers of the Game: Central Bank Independence during the Interwar Years.” International Organization 50(3): 407443.
Soskice, D. 1990. “Wage Determination: The Changing Role of Institutions in Advanced Industrialized Countries.” Oxford Review of Economic Policy 6:3661.
Way, C. 2000. “Central Banks, Partisan Politics, and Macroeconomic Outcomes.” Comparative Political Studies 33(2): 196224.
Western, B. 1998. “Causal Heterogeneity in Comparative Research: A Bayesian Hierarchical Modeling Approach.” American Journal of Political Science 42:12331259.
MathJax is a JavaScript display engine for mathematics. For more information see


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed