The impact of societal preferences on national monetary policy outcomes: A revival of economic pluralism

Abstract

This study investigates how societal preferences impact policy choices in the trade-off between exchange rate stability and monetary policy autonomy. Building on the theoretical approach of economic pluralism, it is argued that the size and strength of different economic actors are the central determinants for monetary policy outcomes. Times-series crosssectional regression analysis and a fixed effect model are used to analyse the predictors for domestic monetary policy outcomes in a timespan from 1960 up to 2010 (N=467). The results suggest that the size of the export sector, the banking sector and the share of workers to gross capital formation are the central determinants for monetary policy outcomes. Being in line with economic pluralism, the finding stands in contrast to the previous assumption that the partisan character of governments plays the decisive role. This implies a dominance of lobby groups over government discretion in monetary policy choices.