Deficits and Money Growth: Empirical Evidence for Switzerland

Direct political influence on monetary policy is analyzed in the framework of elections, parties and administrations. Indirect political influence is investigated by testing for effects of fiscal policy on monetary policy. (Laney/Willett 1983 54; Alesina/Sachs 1988 67 Fn. 6; Lang/Welzel 1992 73) The impact of fiscal policy on monetary policy is frequently studied in the context of a budget deficit (or surplus) money supply relationship. The basic argument is that fiscal policy controls macroeconomic variables, for instance the deficit, that influence monetary policy. The way the central bank reacts to these variables is interpreted as evidence on the (in)dependence debate.