International and Domestic Constraints on Political Business Cycles in OECD Economies: A Comment

Abstract

We attempt to assess the effect of monetary policy in a panel model for 16 member countries of the Organization for Economic Cooperation and Development (OECD). To answer the question of whether central banks actively create political business cycles, we focus on the short-term interest rate as a proxy for the use of monetary instruments. Our results indicate that central banks do not create political business cycles. This conclusion holds whether or not central banks are independent and whether or not they are constrained by the exchange-rate system in force.