Michigan Studies in International Political Economy

Transcription

1 Monetary Divergence

2 Michigan Studies in International Political Economy SERIES EDITORS: Edward Mansfield and Lisa Martin Michael J. Gilligan Empowering Exporters: Reciprocity, Delegation, and Collective Action in American Trade Policy Barry Eichengreen and Jeffry Frieden, Editors Forging an Integrated Europe Thomas H. Oatley Monetary Politics: Exchange Rate Cooperation in the European Union Robert Pahre Leading Questions: How Hegemony Affects the International Political Economy Andrew C. Sobel State Institutions, Private Incentives, Global Capital Roland Stephen Vehicle of Influence: Building a European Car Market William Bernhard Banking on Reform: Political Parties and Central Bank Independence in the Industrial Democracies William Roberts Clark Capitalism, Not Globalism: Capital Mobility, Central Bank Independence, and the Political Control of the Economy Edward D. Mansfield and Brian M. Pollins, Editors Economic Interdependence and International Conflict: New Perspectives on an Enduring Debate Kerry A. Chase Trading Blocs: States, Firms, and Regions in the World Economy Monetary Divergence: Domestic Policy Autonomy in the Post Bretton Woods Era

3 Monetary Divergence Domestic Policy Autonomy in the Post Bretton Woods Era DAVID H. BEARCE Ann Arbor

4 Copyright by the University of Michigan 2007 All rights reserved Published in the United States of America by Manufactured in the United States of America c Printed on acid-free paper No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, or otherwise, without the written permission of the publisher. A CIP catalog record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Bearce, David H., 1967 Monetary divergence : domestic policy autonomy in the post Bretton Woods era /. p. cm. (Michigan studies in international political economy) Includes bibliographical references and index. ISBN-13: (cloth : alk. paper) ISBN-10: (cloth : alk. paper) ISBN-13: (pbk. : alk. paper) ISBN-10: (pbk. : alk. paper) 1. Monetary policy History 20th century. 2. International finance History 20th century. 3. Macroeconomics History 20th century. I. Title. II. Series. HG230.3.B '3 dc

5 To Dana, whose loving support made this book and everything else possible

6 Contents List of Tables List of Figures Acknowledgments ix xi xiii Chapter 1 Introduction 1 Chapter 2 The Monetary Convergence Hypothesis 13 Chapter 3 Evidence of Monetary Divergence 31 Chapter 4 From Fiscal to Monetary Divergence 53 Chapter 5 Explaining Divergence in the Policy Mix 73 Chapter 6 Illustrating Partisan Divergence in the Policy Mix 99 Chapter 7 Expanding the Argument 125 References 139 Index 153

7 Tables 1. Three Waves of Political Science Literature on Monetary Policy Convergence 2 2. Estimates of the Trade-off between Monetary Autonomy and Exchange Rate Variability Estimates of Government Spending on the Policy Interest Rate Hypothesized Relationships between Domestic Political Factors and National Policy Instruments and Exchange Rate Variability Estimates of Domestic Political Factors on National Policy Instruments and Exchange Rate Variability Three Theories of Partisan Economic Policy Goals and Instruments 94

8 Figures 1. Three International Monetary Policy Orientations Examples of Different International Monetary Orientations The International Monetary Orientation Predicted by the Systematic Monetary Policy Convergence Hypothesis Average OECD Exchange Rate Variability, Average OECD Financial Openness, The Marginal Effect of Monetary Autonomy (MONAUT) on Exchange Rate Variability (EXRCV) The Hypothesized Trend toward Systematic Monetary Policy Convergence Average OECD Nominal Interest Rate Differential, Variation in OECD Monetary Autonomy, Different Fiscal and Monetary Policy Mixes The Fiscal and Monetary Strategic Game Internal Policy Choices Leading to External Policy Convergence Internal Policy Choices Leading to Domestic Policy Autonomy Exchange Rate Stability and the Policy Mix Linking Fiscal Policy, Monetary Policy, and Exchange Rate Stability Partisan Policy Mix Divergence Identifying the French and British Cases French Monetary Policy Autonomy, French Government Spending,

9 xii Figures 20. The Socialists New Left Policy Mix The Conservatives Neoliberal Policy Mix British Exchange Rate Variability, Decisions concerning the EMU 133

10 Acknowledgments I would like to thank three different research communities for the valuable contributions that they provided to the research presented in this book. Because the very rst version of this research project took the form of my doctoral dissertation at Ohio State University, I begin by offering my thanks to Ed Mans eld, David Rowe, Tim Frye, and Eric Fisher for helping me get started on the project and for then keeping me on track. I also thank a fellow student in the eld of international political economy (IPE) at Ohio State, Pat McDonald, who provided lots of useful comments on the many drafts of my chapters and papers related to monetary policy divergence among advanced industrial democracies. My second round of thanks goes to the research community at the University of Pittsburgh, where I began writing this book as an assistant professor. I am grateful to my colleagues in the Department of Political Science, including David Barker, Chris Bonneau, Chuck Gochman, Michael Goodhart, Mark Hallerberg, Anibal Perez-Linan, Sebastian Saiegh, Dan Thomas, and Tony Walters for substantive and methodological comments or suggestions that found their way into the manuscript. In particular I also thank Nita Rudra, who volunteered to read multiple drafts of the manuscript. Her insightful feedback led me to restructure my arguments in an effort to reach a broader IPE audience. My third research community is the ever-expanding set of scholars devoted to international and comparative monetary politics. For instructive comments on these topics, as well as for setting professional examples that I have deliberately tried to imitate, I thank Bill Bernhard, Lawrence Broz, Bill Clark, Mark Hallerberg, and Jerry Cohen. I also offer sincere thanks to Jonathan Kirshner and Eric Helleiner, who organized a workshop devoted to the manuscript for this book in November 2005 at Cornell University. I feel honored that so many

11 xiv Acknowledgments prominent scholars, including Phil Cerny, Kate McNamara, Layna Mosley, Lou Pauly, Chris Way, and Michael Webb, attended and offered their criticism and suggestions for improving the manuscript. I have not been able to follow all of their advice, but I hope that this book is much improved as a result of trying. Finally, I offer my genuine thanks to two anonymous reviewers for their helpful and encouraging comments about this book s manuscript and to Jim Reische, who shepherded me through the peer review process for the University of Michigan Press. I am honored to be associated with the series Michigan Studies in International Political Economy, which has published some great books on the topic of monetary politics. Deborah Patton built the index for this book, and her work was supported by a grant from the Richard D. and Mary Jane Edwards Endowed Publication Fund at the University of Pittsburgh.