Hope, David
(2016)
The political economy of growth models and macroeconomic imbalances in advanced democracies.
PhD thesis, London School of Economics and Political Science.
Abstract
The papers in this thesis explore the political economy of the macroeconomic imbalances that built up between advanced democracies during the Great Moderation—the long period of reduced macroeconomic volatility and low inflation that preceded the global financial crisis. More specifically, the papers focus on the role that institutions, political systems and electoral politics, and government demand-side policies played in the imbalances that emerged in real exchange rates and current accounts. The first paper uses macroeconomic data on OECD economies and a new statistical approach for causal inference in observational studies—the synthetic control method—to estimate the effect of the European Monetary Union (EMU) on the current account balances of individual member states. This counterfactuals approach provides strong evidence that the introduction of the EMU was responsible for the divergence in current account balances among member states. The second paper maps out the complex set of interrelationships between varieties of capitalism, growth models, and political systems in advanced democracies. The new approach to comparative political economy developed in the paper provides a theoretical framework that helps explain the current account divergence between the export-led coordinated market economies (CMEs) and the consumption-led liberal market economies (LMEs). The third paper brings modern
macroeconomics back into political science. The paper sets out a suite of simple open economy macroeconomic models and uses them to show how governments pursuing different demand-side policies can result in persistent current account imbalances between countries within a system of independent inflation-targeting central banking. Taken together, the papers provide important theoretical arguments and empirical evidence on the political (and political economic) drivers of the macroeconomic imbalances that were a crucial precursor to the worst global economic downturn since the Great Depression of the 1930s.
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