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Contingent signals: The political preconditions for successful economic stabilisation

Applicant Sattler Thomas
Number 165480
Funding scheme Project funding (Div. I-III)
Research institution Département de science politique Université de Genève
Institution of higher education University of Geneva - GE
Main discipline Political science
Start/End 01.09.2016 - 31.08.2020
Approved amount 517'511.00
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Keywords (5)

Financial crisis; Credibility; Signaling; Political Economy; Text analysis

Lay Summary (German)

Lead
Die Eurokrise zeigt, wie schwierig es für demokratisch gewählte Regierungen ist, während Wirtschaftskrisen das Vertrauen von Finanzinvestoren zurückzugewinnen. Gleichzeitig wird deutlich, dass Regierungen in verschiedenen Ländern unterschiedlich gut in der Lage sind, auf eine solche Krise zu reagieren. So hat z.B. die irische Regierung das Vertrauen der Märkte schneller zurückgewonnen als die griechische oder die spanische Regierung.
Lay summary

Das Ziel des Forschungsprojekts ist es zu zeigen, wie unterschiedliche politische Rahmenbedingungen es der Regierung erleichtern oder erschweren, das Vertrauen in die Politik der Regierung wiederherzustellen. Es wird untersucht, inwiefern die von Politikern vorgeschlagenen Reformen zu einer Beruhigung der wirtschaftlichen Situation führen. Gemäss unseren Erwartungen werden solche Ankündigungen von Politikern nur dann als glaubwürdig eingestuft, wenn die Umsetzung des angekündigten Wirtschaftsprogramms nicht zu politischer Instabilität, z.B. in Form von Regierungskrisen, führt. Ob dies der Fall ist, hängt u.a. von der Zersplitterung des politischen Parteiensystems, der allgemeinen politischen Unterstützung der Regierung in der Bevölkerung und der institutionellen Struktur eines Landes ab. Dies bedeutet, dass Wirtschaftsprogramme, welche aus wirtschaftlicher Sicht sinnvoll erscheinen, nicht zu einer Verbesserung der Situation führen, wenn sie politisch unglaubwürdig sind.

Das Projekt verfolgt einen innovativen sozialwissenschaftlichen Ansatz im Bereich der Wirtschaftspolitik, indem es neuartige wissenschaftliche Methoden der computergestützten, automatisierten Untersuchung von politischen Ankündigungen mit der Finanzmarktforschung verbindet. Es leistet damit einen Beitrag zum besseren Verständnis der Ursachen und Lösungen von Finanzkrisen.

Direct link to Lay Summary Last update: 30.06.2016

Responsible applicant and co-applicants

Employees

Publications

Publication
The battle of ideas on the euro crisis: evidence from ECB inter-meeting speeches
Ferrara Federico Maria (2020), The battle of ideas on the euro crisis: evidence from ECB inter-meeting speeches, in Journal of European Public Policy, 27(10), 1463-1486.
Voter Responses to Fiscal Austerity
Hübscher Evelyne, Sattler Thomas, Wagner Markus (2020), Voter Responses to Fiscal Austerity, in British Journal of Political Science, 1-10.
The Political Economy of Financial Markets
Ferrara Federico Maria, SattlerThomas (2018), The Political Economy of Financial Markets, in Oxford Research Encyclopedia in Politics, 1-32.

Datasets

Replication Data for "Voter Responses to Fiscal Austerity"

Author Hübscher, Evelyne; Sattler, Thomas; Wagner, Markus
Persistent Identifier (PID) doi: 10.7910/DVN/VHS0J3
Repository Harvard Dataverse


Replication data for: The battle of ideas on the euro crisis

Author Ferrara, Federico
Persistent Identifier (PID) 10.6084/m9.figshare.9948062.v1
Repository tandf figshare


Collaboration

Group / person Country
Types of collaboration
New York University United States of America (North America)
- Publication
European Central Bank Germany (Europe)
- in-depth/constructive exchanges on approaches, methods or results
- Publication
- Exchange of personnel
Central European University Hungary (Europe)
- in-depth/constructive exchanges on approaches, methods or results
- Publication
University of Vienna Austria (Europe)
- in-depth/constructive exchanges on approaches, methods or results
- Publication
London School of Economics Great Britain and Northern Ireland (Europe)
- in-depth/constructive exchanges on approaches, methods or results
- Publication
University of Toronto Canada (North America)
- in-depth/constructive exchanges on approaches, methods or results
McGill University Canada (North America)
- in-depth/constructive exchanges on approaches, methods or results
- Publication

Scientific events

Active participation

Title Type of contribution Title of article or contribution Date Place Persons involved
Annual Meeting of the American Political Science Association Talk given at a conference Austerity, Economic Vulnerability, and Populism 13.09.2020 online, United States of America Sattler Thomas;
ECPR General Conference Talk given at a conference Fiscal Trade-Offs and the Political Contestation of Austerity 24.08.2020 online, Germany Sattler Thomas;
The New Politics of Growth and Stagnation II Talk given at a conference Growth Models under Austerity 29.01.2020 Max Planck Institut für Gesellschaftsforschung, Germany Sattler Thomas;
Workshop on "Opportunities and Challenges in Economic Policy Communications" Talk given at a conference Clarity of Central Bank Communication with the Public: How Does the ECB Perform and Why Does it Matter? 17.01.2020 Central Bank of Ireland, Ireland Ferrara Federico Maria;
Annual Meeting of the International Political Economy Society Talk given at a conference Does Austerity Cause Polarization? 15.11.2019 San Diego, United States of America Sattler Thomas;
European Central Bank’s internal seminar on “Knowledge and Attitudes towards the ECB: New Data and Applications” Talk given at a conference The Cultural Origins of Institutional Trust: The Case of the ECB 24.10.2019 European Central Bank, Germany Ferrara Federico Maria;
‘Economic Consequences of the Peace' Centenary Conference Talk given at a conference Does Austerity Cause Polarization 09.09.2019 University of Cambridge, Great Britain and Northern Ireland Sattler Thomas;
Annual Meeting of the American Political Science Association Talk given at a conference The Battle of Ideas 30.08.2019 Boston, United States of America Ferrara Federico Maria;
Annual Meeting of the American Political Science Association Talk given at a conference Does Austerity Cause Polarization? 29.08.2019 Washington D.C., United States of America Sattler Thomas;
The New Politics of Growth and Stagnation Talk given at a conference Growth Models under Austerity 28.08.2019 Brown University, United States of America Sattler Thomas;
Annual Meeting of the European Political Science Association Talk given at a conference Does Austerity Cause Polarization? 20.06.2019 Belfast, Great Britain and Northern Ireland Sattler Thomas;
EUSA Biennial Conference Talk given at a conference The Battle of Ideas 09.05.2019 Denver, United States of America Ferrara Federico Maria;
3-Ländertagung (DVPW, SVPW, ÖGPW) Talk given at a conference Voter Responses to Fiscal Austerity 14.02.2019 ETH Zürich, Switzerland Sattler Thomas;
Conference on „The Political Consequences of the Great Recession“ Talk given at a conference Austerity Politics 10.10.2018 European University Institute, Italy Sattler Thomas;
Conference on „The Survival of the Welfare State“ Talk given at a conference Voter Responses to Fiscal Austerity 14.09.2018 Wirtschaftsuniversität Wien, Austria Sattler Thomas;
Annual Meeting of the American Political Science Association Talk given at a conference The First Policy Trap: Deficits, Austerity and Popularity 30.08.2018 Boston, United States of America Sattler Thomas;
Annual Meeting of the American Political Science Association Talk given at a conference Exports vs. Investment: How Public Discourse Shapes Support for External Imbalances 30.08.2018 Boston, United States of America Sattler Thomas;
Conference on Growth Models and the Politics of Macroeconomic Policy Talk given at a conference Privileged and Unprivileged Countries in the World Economy 24.05.2018 Max Planck Institute für Gesellschaftsforschung, Germany Sattler Thomas;
Doctoral School Individual talk Machine Learning for the Social Sciences 10.04.2018 University of Geneva, Switzerland Peterson Andrew;
Annual Meeting of the Midwest Political Science Association Talk given at a conference Ideational Variation that Matters: Economic Narratives, International Crisis Management, and the European Central Bank 05.04.2018 Chicago, United States of America Ferrara Federico Maria;
Annual Meeting of the Midwest Political Science Association Talk given at a conference Voter Responses to Fiscal Austerity 05.04.2018 Chicago, United States of America Sattler Thomas;
Annual Meeting of the Midwest Political Science Association Talk given at a conference The Political Benefits of IMF Interventions 05.04.2018 Chicago, United States of America Sattler Thomas;
TeDis Seminar Individual talk Measuring position taking: state of the art focusing on the UK Parliament as a case study 12.10.2017 University of Geneva, Switzerland Peterson Andrew;
Annual Conference of the European Political Science Association Talk given at a conference Political Communication and Macroeconomic Stabilization 22.06.2017 Milan, Italy Peterson Andrew; Sattler Thomas;
Annual Meeting of the European Political Science Association Talk given at a conference Ideational Variation that Matters: Economic Narratives, International Crisis Management, and the European Central Bank 22.06.2017 Milan, Italy Ferrara Federico Maria;
Research Seminar Individual talk The Origins of Economic Imbalances 28.04.2017 IE University, Spain Sattler Thomas;
Conference on Inequality and Fairness of Reforms Talk given at a conference The Fiscal Policy Trap 08.12.2016 University of Mannheim, Germany Sattler Thomas;


Knowledge transfer events

Active participation

Title Type of contribution Date Place Persons involved
Research Seminar of the Directorate General Economics, European Central Bank Talk 27.06.2019 ECB, Frankfurt, Germany Sattler Thomas; Ferrara Federico Maria;


Abstract

One of the most urgent policy questions that emerged from the Eurocrisis concerns the optimal strategy of governments to restore investor confidence in times of economic instability. At its core, the problem of this crisis is the reluctance of investors to provide further credit to public and private households because they risk losing these investments if the economy destabilises further. Effective stabilisation, therefore, requires that governments send signals to enhance confidence in their ability and willingness to restore stability. According to economic theory, such signals are costly policies, like fiscal austerity measures, because they allow investors to identify policymakers who are strongly committed to stability. Following this view, European governments implemented harsh consolidation measures, but the success of these policies has varied significantly. This is consistent with broader research that shows that such tough signals often do not have the desired effect. A key problem is that we do not know how domestic political conditions interfere with policymakers’ signalling intentions. Under democratic rule, crisis resolution is not only a challenging economic enterprise, but also a delicate political task. The economic part requires that governments make unpopular policy choices to address the structural problems that led to the crisis. The political side requires that governments consider the political consequences of these choices and assess whether they can be sustained into the future. If sustainability is questionable, the signal is not credible because investors understand that politicians have an incentive to reverse the unpopular policies. Elected policymakers, therefore, play a decisive role during stabilisation periods, but there is no research on the communication between politicians and investors that helps us to understand how governments optimally balance the detrimental economic and political forces.The analysis of communication between elected politicians and investors requires new empirical data that is not yet available. This lack of a coherent and systematic dataset of public policy announcements by governments represents a frontier in political economy research. A challenge for analyses of politics and financial markets is the immediate response of investors to political news. The commonly used monetary and fiscal aggregates only improperly capture the connection between political actors and investor behaviour. Investor expectations adjust to policy changes when they are announced and long before these changes are visible in macroeconomic outcomes. The key prerequisite for a study of the political economy of stabilisation, therefore, is the collection of novel data that captures the continuous information flow from elected government officials to financial investors. The proposed research addresses this obstacle by combining two, currently separate, areas in political research, notably research on the political economy of financial markets and research on the automated analysis of political texts. I will use text analysis to gather real-time information on the intentions of government policymakers from their public statements and examine how these public statements affect investor behaviour. This allows me to establish how political and institutional conditions, most importantly political polarisation, government ideology, political support for the government and central bank independence, reinforce or undermine the effect of government signals. The results will explain why policies that should be effective from a purely economic point of view do not enhance investor confidence. This is a milestone in the analysis of policymaker credibility because it changes how we think about government behaviour and what policymakers realistically can and cannot achieve in times of crisis. To summarise, the aims of the project are: •to build a novel and original dataset of economic policy statements; •to estimate the relationship between statements, political conditions and credibility;•to examine the communication between policymakers and financial investors in Europe;•to determine the optimal policy response to financial pressure under given political conditions.
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