Political Parties and Monetary Commitments

Abstract

Increased levels of economic openness in the industrial democracies have heightened the potential for intra-party and intra-coalition policy conflicts, hurting the ability of parties to win and retain office. We argue that politicians can use monetary commitments to help manage these conflicts and improve cabinet durability. To determine the political value of these commitments, we test the effect of fixed exchange rates and central bank independence on cabinet durability using a set of 193 cabinets in sixteen parliamentary democracies across the period 1972–98. The results indicate that monetary commitments are associated with higher cabinet durability, particularly for coalition governments. We then use the results of our statistical models to generate expected cabinet durability under alternative institutional configurations. By comparing these expected values, we show that actual monetary reforms in the industrial democracies have helped (or at least not hurt) the ability of political parties to remain in office.