INTERNATIONAL AND DOMESTIC CONSTRAINTS ON POLITICAL BUSINESS CYCLES IN OECD ECONOMIES

The effect of increased capital mobility on the national control of ma croeconomic policy continues to be a topic of debate. Empirical contri butions to this debate share the assumption that domestic macroeconomi c policy is driven by either partisan or countercyclical motivations, and that the effects of international financial flows have roughly sim ilar effects in all countries. This article reevaluates the integratio n hypothesis in a framework in which manipulations of the macroeconomy derive from opportunistic motivations. The article emphasizes the way s in which prior institutional choices effect the way these motivation s are translated into actions. Evidence from individual country and po oled time-series tests suggests that opportunistic cycles are less lik ely to occur when (1) a government maintains a fixed exchange rate in the presence of highly mobile capital or (2) when the central bank enj oys above-average independence.