Literature Review and Empirical Evidence

1382 WordsFeb 19, 20185 Pages
CHAPTER 3: LITERATURE REVIEW AND EMPIRICAL EVIDENCE 3.0 Introduction This section explains the development of CBI-related theoretical frameworks, the different CBI measures and indices that have been reviewed through various studies; the fore said benefits of CBI and wraps-up empirical evidence. 3.1. The Theoretical Arguments and Underpinnings Theories on CBI has most been constructed from pioneering empirical cases over the past three decades. Among the several theories developed, the case of CBI is mainly linked with the following notable works. These theories postulate that political authorities will look for incentives and opportunities to achieve real economic objectives or short-term political objectives and do not disparage the powers of Central Banks to resist political pressure. 3.1.1. Political Business Cycles Model Nordhaus (1975), Hibbs (1977) and other writers on ‘political business cycles’ alluded that economic business cycles will be mirroring the election cycles and this would give enough leeway for frictions between political considerations and economic requisites to arise. These theorists pointed out that incumbent Governments may tend to apply restrictive policies at the outset of their tenure while they would catalyse pre-election booms as vote seeking strategies; and if they are re-elected, the policy priorities may shift extreme once more towards inflation control in lieu of employment generation.. Alteration to the dynamics of the economic can
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