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Contingent signals: The political preconditions for successful economic stabilisation

Gesuchsteller/in Sattler Thomas
Nummer 165480
Förderungsinstrument Projektförderung (Abt. I-III)
Forschungseinrichtung Département de science politique SES Université de Genève
Hochschule Universität Genf – GE
Hauptdisziplin Politikwissenschaften
Beginn/Ende 01.09.2016 - 31.08.2019
Bewilligter Betrag 517'511.00
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Keywords (5)

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

Lay Summary (Deutsch)

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.

Direktlink auf Lay Summary Letzte Aktualisierung: 30.06.2016

Verantw. Gesuchsteller/in und weitere Gesuchstellende

Mitarbeitende

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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