The "Hierarchy of Institutions" reconsidered: Monetary policy and its effect on the rule of law in interwar Poland.

Hartwell, C. A., 2018. The "Hierarchy of Institutions" reconsidered: Monetary policy and its effect on the rule of law in interwar Poland. Explorations in Economic History, 68 (April), pp. 37-70.

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DOI: 10.1016/j.eeh.2018.03.001

Abstract

Traditional wisdom in economics holds that institutional change runs from political institutions to economic ones, with the distribution of political power affecting the creation of property rights and rule of law. This hierarchy of institutions has been observed in macroeconomic policy, where it has long been understood that there are political incentives for economic mismanagement, namely the creation of inflation. But are there longer-term effects of currency manipulation on the rule of law in a country? That is, does the hierarchy not always hold? This paper answers this question by focusing on a specific case of monetary instability, the newly-independent Second Polish Republic of 1918 to 1939. Using appropriate econometric techniques on a new database of historical data, I find that monetary profligacy correlates strongly with significantly lower levels of the rule of law. This result is robust to several tests and most specifications, including the use of a new variable for measuring access to the political system. The results suggest that monetary instability is a threat to political institutions in its own right, eroding the rule of law in addition to creating macroeconomic difficulties.

Item Type:Article
ISSN:0014-4983
Uncontrolled Keywords:Poland; Inflation; Institutions; Rule of law; Monetary policy
Group:Faculty of Management
ID Code:30524
Deposited By: Unnamed user with email symplectic@symplectic
Deposited On:27 Mar 2018 14:01
Last Modified:01 May 2018 13:14

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