Multiple Hands on the Wheel: Empirically Modeling Partial Delegation and Shared Policy Control in the Open and Institutionalized Economy

The causal arguments of modern, positive political science oftenimply complex interactions among multiple explanatory factors.In one example from comparative and international politicaleconomy (C&IPE), sharing of monetary-policymaking controlbetween partially autonomous central banks and politically responsivegovernments yields inflation as a convex combination of therates that would have held under full-government and full-central-bankpolicy control. The anti-inflationary effect of central bankindependence (autonomy plus conservatism: CBA) therefore dependson all political–economic variables to which central banksand governments respond differently, and, vice versa, CBA mutesthe inflation effects of all such factors. Extending that logicof shared policy control to open political economies: insofaras domestic monetary authorities fix exchange rates, they effectivelydelegate inflation control to foreign (peg-currency) authorities,and policymakers in small and financially exposed economiesmust match domestic inflation to foreign (global) rates to avoidmassive exchange-rate pressures. Thus, analogously, the domestic-inflationeffects of fixed exchange rates and of monetary exposure dependon each other and on many other institutional and structuralaspects of the domestic and foreign political economies, and,vice versa, the effects of all domestic and foreign political–economicconditions depend on degrees of exchange-rate fixity and financialopenness at home and abroad. This article shows how to modelsuch complexly interactive hypotheses empirically compactlyand substantively meaningfully, and demonstrates the postwarinflation records of 21 developed democracies to favor suchspecifications decidedly over standard linear-additive or linear-interactivealternatives. The concluding sections discuss specific resultsand implications and then suggest several more potential applicationsof this general approach to further instances of shared policycontrol and other substantive contexts that induce the multiple,complex interactions characteristic of modern, positive politicalscience in general and C&IPE especially.