Political Business Cycles in Türkiye: June 2018-May 2023

This article investigates the extent to which central bank independence can help to reduce political business cycles in Africa. Like previous studies, we find evidence of political cycles in our sample of 34 African countries for the period 1980–2018, but our findings show that politicians' ability to manipulate both fiscal and monetary policy depends on the degree of alliance between the fiscal authority and the monetary authority. Indeed, our analysis reveals that the political business cycle worsens when the central banker is an ally whereas a non‐ally central banker is associated with a decrease in the ability of the incumbent government to induce opportunistic political cycles, and this result holds, regardless of whether an African country is classified as a democracy or a dictatorship. In addition to that, despite the theoretical argument that political business cycles are unlikely to exist in dictatorships, we find evidence that both political budget and monetary cycles are prevalent in African dictatorships.

I: Introduction. Central Banking and Monetary Policies: Major Issues and Implications for Transition Economies M.I. Blejer, M. Skreb. II: Central Bank Independence. Central Bank Independence and Monetary Policy J.A. Frenkel. Central Banking in a Democratic Society: Implications for Transition Countries F.S. Mishkin. Central Bank Independence and the Political Business Cycle: A Critical Re-examination A. Drazen. Political Culture and the Political Economy of Central Bank Independence A. Hillman. III: Defining Central Bank Functions. Central Banking and Economic Development M.J. Fry. IV: Central Banks and Financial Soundness. Central Banks, Asset Bubbles, and Financial Stability G.G. Kaufman. The Conduct of Monetary Policy and Banking Soundness: A Slovenian Episode V. Bole. V: Disinflation and the Role of Nominal Targets. Monetary Policy Strategies for Disinflation: Lessons from Recent Experiences in Transition Economies and Israel G. Bufman, L. Leiderman. VI: Currency Crises and Capital Controls. Speculative Attacks and Capital Mobility C. Wyplosz. Nascent Capital Flows, Learning and Chilean-type Controls M. Selowski, R. Martin. The Role of the Central Banks in the Capital Account Liberalization: Case of Croatia V. Sonje. VII: Currency Boards. Some Reflections about Currency Boards S.H. Hanke. The Central Bank of Bosnia and Herzegovina: Its History and its Issues W. Coats. VIII: EMU and Transition Economies. The International Impact of the Euroland and its Implications for Transition Countries R.A. Mundell. Monetary and Exchange Rate Policy of Transition Economies of Central and Eastern Europe after the Launch of EMU P.A. Masson.

The Fed-induced political business cycle: Empirical evidence from a time–frequency view

The political business cycle, by which one means fluctuations in economic activity that correspond to the electoral cycle, can be observed in many countries. The classic study of the political business cycle is Tufte (1978), in which he presented basic evidence of cyclical movements in policy instruments and in measures of economic activity that correlate with the political cycle and peak around election time. (We discuss below more formal econometric evidence.) For example, for the United States from 1948 to 1976, he argues that, with the exception of the Eisenhower years in the 1950s, political business cycles have consisted of a two-year cycle in “real disposable income, with accelerations in even-numbered years and decelerations in odd-numbered years,” as well as four-year cycle “in the unemployment rate, with downturns in unemployment in the months before a presidential election and upturns in the unemployment rate usually beginning from twelve to eighteen months after the election” (Tufte, 1978, p. 27) He similarly argues there is clear evidence of a political cycle in outcomes in other democratic countries as well, in that “short-run accelerations in real disposable income per capita were more likely to occur in election years than in years without elections” (p. 11) in a sample of twenty-seven countries.

Introduction - SECTION I: AN OVERVIEW OF ECONOMICS - Economic Methodology or How to do Economics - A Brief History of Economic Thought - Microeconomics and Macroeconomics - SECTION II: DEVELOPMENTS IN MICROECONOMICS - Game Theory and its Uses - Privatisation - Economic Theory and the Environment - Government Provision of Services: Health Care and Education - Taxation - International Trade: Old Theories, New Theories and the Single European Market - SECTION III: DEVELOPMENTS IN MACROECONOMICS - Macroeconomic Models - Unemployment, Inflation and the Phillips Curve - Exchange Rates and Economic and Monetary Union - Economics and Politics: Political Business Cycles and Independent Central Banks - Economic Growth: Old Theories, New Theories and Government Policy - Conclusion

In Afghanistan, day to a day power struggle, rampant corruption, and numerous challenges increased and affected National Unity Government. The survival of the country was managed with the help of International Assistance. Afghanistan Analyst Network reports that mismanagement and electrical fraud exist in the parliamentary and presidential elections of 2018 and 2019. Two parties in Afghanistan had created continuous political tension in the country. In several ways, the government of Afghanistan suffered due to violence and insecurity problems. The socio- political management was of the country not focused on efficiently maintaining security problems. Additionally, due to the spread of the COVID-19 pandemic, ninety per cent of the Afghan people were suffering from economic, environmental crises and insecurity problems. The parliamentary election scheduled after the first election in 2004 led to several challenges due to slow preparations. The people of Afghans prefer to have a strong government was the lesson learnt by the presidential election in Afghanistan. The irregularities and fraud reveal the different types of voting patterns. The challenges of a presidential election in Afghanistan based on the voter turnout were examined in this study. The post-conflict state of the country caused the increase or decrease in voter turnout in Afghanistan. The change in the socio-political and economic, and security situation of the country was analyzed during the presidential and parliamentary elections. Parliamentary chambers of Afghanistan held over various years were analyzed based on the number of registered voters, ballots and valid votes.

ABSTRACTIn our paper, we analyse the supply of electricity in conjunction with elections in Kosovo. The results confirm our hypotheses that before scheduled (regular) parliamentary elections, the supply of electricity increases significantly above usual levels, but that this is not the case for early (snap) elections. This paper contributes to the Political Business Cycle (PBC) literature in two ways. It provides additional evidence of incumbent manipulation of non-classical policy instruments before elections. The paper contributes also to the PBC debate by revealing different incumbent strategies in scheduled and early elections, respectively, thus highlighting the importance of distinguishing between these types of elections in PBC research.

Sudden fluctuations that occur as results of politicians’ manipulation on the macroeconomic variables during the election period are called as Political Business Cycle. In recent years, exchange rate also has become an important subject of many studies in this framework. Before the elections, to gain the public’s votes, politicians firstly put pressure on the exchange rates to prevent currency depreciation, and then this can lead to manipulative fluctuations. In this respect, during the 1992:01-2014:12 periods in Turkey, the impact of the entire local and general elections on the real exchange rate volatility is examined using E-GARCH method. On the other hand, political variables such as independence of Central Bank, exchange rate regime, the number of representatives of the ruling party in the parliament and coalition are included to the model while the pre and after election period from the 1st to the 6th month as dummy variables. Based on the results of the analysis, it can be said that the elections and the political variables affect the real exchange rate and its volatility in Turkey. However, there is no significant evidence whether the politicians act opportunistic behavior to be reelected. Since the uncertainty during the election period cause outflow of the capital and deferral of the investment decisions of the investors until after the election, it may well be said that the politicians fail to influence the real exchange rate for their self-interests.

The recent financial crisis has placed the concept of fiscal dominance at the center of current debates on macro-prudential policies. However, empirical evidence of fiscal dominance, understood as fiscal policy driving monetary policy, has been mixed, especially for low inflation countries. The literature hypothesizes that institutional constraints are the reason for the failure to connect deficits to money and prices in these countries. This paper, focusing on Spain 1874–1998, illustrates their constraining role in two steps. First, a recursive estimation of the link from budget to money shows how the degree of fiscal dominance varied over time. Second, we are able to establish a connection between these changes in the intensity of fiscal dominance and changes in the intensity of the institutional (exchange rate and central bank independence) constraints.

This study is about political business cycles (PBC) and investigates the Turkish case in the 1977-2001 period. The PBC literature has been developed in the last four-five decades and links economics and politics in several ways. In the first part of the study, developments in the literature are mentioned and the link between New Classical Economics and New Political Economics is introduced. In the second part, Turkish case is analyzed in details to determine whether there have been PBC during the above mentioned period. The results show that there have been political cycles in some macroeconomic variables which are currency issued, broad money (M1), public sector credits and agricultural credits extended by Central Bank of the Republic of Turkey (CBRT), and tax revenues. CBRT has not allowed PBC especially on the targeted variables (CBRT balance sheet size, net domestic assets and monetary base), after 1989. Due to the high legal ceilings of CBRT credits to the public sector, CBRT was not able to limit those credits, especially before 1991 general elections. There had been similar PBC on agricultural credits which had been extended in the 1977-1991 period by CBRT. In addition to the regression analysis, comparative tables and figures for personnel expenditures of State Economic Enterprises (SEEs), agricultural credits which had been extended by Agricultural Bank of the Republic of Turkey (ABRT) in the 1964-1998 period and agricultural prices which had been declared by governments in the 1986-1999 period are provided in the paper. The study provides some evidence to PBC literature and determines which policy instruments could have been used to produce PBC in the Turkish economy. And it is also important to learn which policies can be manipulated in order to prevent the PBC in the future

▪ Abstract We review the use of macroeconomics in political science over the past 40 years. The field has been dominated by new classical theory, which leaves little room for economic policy and focuses attention on what democratic governments can do wrong in the short term. The resulting literatures on political business cycles and central bank independence are large and sophisticated, but they fail, we argue, to account for most of the observed variance in economic policies and outcomes. In the past decade, mainstream macroeconomics has moved away from new classical approaches toward New Keynesian theories with greater scope for macroeconomic policy. These new approaches, with little impact so far in political science, are reviewed and their implications drawn out. Instead of explaining short-sighted government behavior in an economy with little scope for economic policy, the key question for political science may be why governments often pursue longer-run objectives in an economy with considerable scope for economic policy.

The Nordhaus hypothesis about the political business cycle asserts that elected politicians have incentives to expand the money supply prior to elections to stimulate the economy and thereby engineer their reelection. Central bank independence is widely regarded as an institutional solution to this problem. However, this solution works only if central bankers are not perfect agents of their political principals, perhaps because they are conservative (more inflation-averse). This article proposes an alternative solution: political business cycles may be obstructed by institutional checks and balances. The analysis applies to the Deutsche Bundesbank and has implications for the institutional structure of the future European Central Bank. Copyright 1998 by Royal Economic Society.

The paper surveys political macroeconomics, covering its development from Rogoff’s conservative central banker to the most recent discussions of monetary policy and institutional design. Topics include the inflation‐stabilization trade‐off, central bank independence with escape clauses and overruling with costs, inflation targets, performance contracts for monetary authorities, and the consequences of output persistence for these issues. Further topics are the political business cycle when output is persistent, the political macroeconomics of fiscal policy, the government spending bias, and the game‐theoretic interaction between fiscal and monetary policy. All work is discussed within a coherent analytical framework.

This paper develops a dynamic model of Rational Partisan Business Cycles in which wage contracts overlap elections and wage setters have to make a prediction about the election result. Empirical analysis of 20 OECD countries supports the theoretical implication that left wing incumbents increase output, but increased expectation of a left wing regime reduces it. The model is extended to incorporate the effects of alternative measures of Central Bank Independence (CBI). The measure of objective independence outperforms the other measures and it is found that CBI reduces politically induced business cycles.

The election cycle in the inflation bias: evidence from the G-7 countries