Rational partisan theory’s exclusive focus on electoral uncertainty ignores the importance of policy uncertainty for the economy. I develop a theory of policy risk to account for this uncertainty. Using an innovative measure of electoral probabilities based on Iowa Electronic Markets futures data for the United States from 1988 to 2000, I test both theories. As predicted by rational partisan th...

This paper analyses the impact of the monetary regime change from the Bundesbank to the ECB in 1999 on inflation expectations. In the theoretical part, the Barro-Gordon model is used to derive the potential effect of a new central bank on inflation, inflation expectations and forecast errors. The econometric investigation is based on a flexible specification of expectation formation which allow...

This paper considers whether the Phillips curve can explain the recent behavior of inflation in the United States. Standard formulations of the model predict that the ongoing large shortfall in economic activity relative to full employment should have led to deflation over the past several years. I confirm previous findings that the slope of the Phillips curve has varied over time and probably ...

We estimate a time-varying parameter VAR (TVP-VAR) with stochastic volatility using U.S. data to study the effects of uncertainty shocks on inflation. find response inflation be negative in post-WWII period. Our findings suggest that propagate like aggregate demand and not supply shocks.

In monetary unions of the European type the reduction in exchange rate uncertainty is not able to explain the differences in the economic performance of member countries. It is shown that traditionally unstable countries like Portugal and Ireland benefit significantly from a decrease in inflation and interest rate uncertainty while traditionally stable countries do not. The reduction in politic...

We analyse the interaction between the lack of credibility (or uncertainty) regarding central bank’s inflation target and central bank’s stabilisation policy. We consider a model in which private sector is uncertain about the bank’s inflation target and update its beliefs on it. Furthermore, we assume that the bank cannot observe the private-sector belief about the inflation target as well as f...