Real Economic Performance Research Articles

The real exchange rate and macroeconomic performance in Sub-Saharan Africa

Pooled time-series and cross-section data for 33 countries in Sub-Saharan Africa (SSA) confirm the negative relationship between the real exchange rate (RER) misalignment and economic performance (economic growth, imports, exports, saving and investment). Macroeconomic instability also slows growth and other indicators of performance. Higher levels of misalignment are accompanied by higher levels of macroeconomic instability. Both lower levels of RER misalignment and instability lead to better economic performance. The Edwards model of RER determination performs well for the region. Black market premia tend to show a greater degree of misalignment in RER than alternative measures.

Political and Monetary Institutions and Public Financial Policies in the Industrial Countries

Institutions and policies Vittorio Grilli, Donato Masciandaro and Guido Tabellini Why do countries as similar as the industrialized OECD countries go through such different experience in terms of public deficits and debts or in terms of inflation? The answer cannot come from macroeconomic policy responses to different disturbances, nor from the principles of optimal taxation, but rather from politics. This article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers. The electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts. What seems to matter most, it is found, is the effect of the durability of governments. Governments with short horizons act myopically and never quite tackle the hard choices. Such governments typically exist in countries with an electoral system favouring many small political parties. Central bank independence promotes low inflation with no apparent costs in terms of real economic performance, irrespective of the political institutions. In fact there is no link between monetary and fiscal discipline. These findings carry powerful implications for countries facing high indebtedness or stubborn inflation, but also for the construction of the European Economic and Monetary Union.

Real Exchange Rate Behavior and Economic Performance in LDCs

In recent years, policy discussions have included increasing references to real exchange rate (RER) stability and correct exchange rate alignment as crucial conditions to improve economic performance in less developed countries (LDCs).1 Evidence from Latin American, Asian, and African countries is often quoted to support the view that the link between RER behavior and economic performance is strong. It is argued that while unstable RERs inhibited export growth in some of Latin America, their stability was fundamental in promoting East Asian expansion. In many African countries, on the other hand, persistently misaligned local currencies harmed the development of agriculture, reducing domestic food supply.2 But, in spite of its importance, no empirical work has been attempted either to test the relationship between RER behavior and performance indicators at a broad multicountry level or to investigate the sources of RER variability and misalignment in LDCs. The theoretical literature on RER determinants has been recently surveyed by Sebastian Edwards.3 He distinguishes between equilibrium and disequilibrium RERs and between external and domestic RER determinants. Although domestic policies are often said to account for significant RER variations, empirical work has only concentrated on the effect of nominal devaluations4 or speculative crises arising from expansionary monetary policies in a system of fixed ex-

Economic Outcomes and Political Support for British Governments among Occupational Classes: A Dynamic Analysis

The first section of the article establishes the political salience of macroeconomic issues to the British electorate, reviews the distributional consequences of macroeconomic outcomes, and suggests that unemployment outcomes in particular have strong class-related distributional effects.The second part presents a dynamic model of how rational voters evaluate the governing party, based on the idea that voters evaluate the cumulative performance of the governing party relative to the prior performance of the current opposition. Since the present relevance of prior outcomes decays over time, voters weight current performance more heavily than past performance informing contemporaneous political judgments.The empirical analyses in the third section include measures of nominal economic performance (inflation and exchange rate movements) and real economic performance (unemployment and real income fluctuations). The regression results indicate that the responses of political support among the occupational classes to macroeconomic changes are sizeable, and that the cross-class variations are consistent with the distributional consequences reviewed at the beginning of the article.The concluding section develops the electoral implications of the empirical results and presents a novel interpretation of trends in class-related political support for the parties. The evidence shows that the argument that there has been a persistent decline of class-based political alignments in Britain is erroneous.

Economic Outcomes and Political Support for British Governments among Occupational Classes: A Dynamic Analysis

The first section of the article establishes the political salience of macroeconomic issues to the British electorate, reviews the distributional consequences of macroeconomic outcomes, and suggests that unemployment outcomes in particular have strong class-related distributional effects.The second part presents a dynamic model of how rational voters evaluate the governing party, based on the idea that voters evaluate the cumulative performance of the governing party relative to the prior performance of the current opposition. Since the present relevance of prior outcomes decays over time, voters weight current performance more heavily than past performance informing contemporaneous political judgments.The empirical analyses in the third section include measures of nominal economic performance (inflation and exchange rate movements) and real economic performance (unemployment and real income fluctuations). The regression results indicate that the responses of political support among the occupational classes to macroeconomic changes are sizeable, and that the cross-class variations are consistent with the distributional consequences reviewed at the beginning of the article.The concluding section develops the electoral implications of the empirical results and presents a novel interpretation of trends in class-related political support for the parties. The evidence shows that the argument that there has been a persistent decline of class-based political alignments in Britain is erroneous.