Abstract
How do prime ministers manage investors' expectations during financial crises? We take a novel approach to this question by investigating ministerial appointments. When prime ministers appoint technocrats, defined as non-partisan experts, they forgo political benefits and can credibly signal their willingness to pay down their debt obligations. This reduces bond yields, but only at times when the market is sensitive to expected repayments---i.e., during crises. To examine the theory, we develop an event study analysis that employs new data on the background of finance ministers in 21 Western and Eastern European democracies. We find that investors reward technocratic appointments by reducing a country's borrowing costs. Consistent with the theory, technocratic appointments under crises predict lower bond yields. Our findings contribute to the literature on the interplay of financial markets and domestic politics.
Original language | English |
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Pages (from-to) | 386-419 |
Number of pages | 34 |
Journal | Comparative Political Studies |
Volume | 55 |
Issue number | 3 |
Early online date | 10 Jul 2021 |
DOIs | |
Publication status | E-pub ahead of print - 10 Jul 2021 |
Keywords
- technocratic governments
- technocrats
- financial markets
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Supplemental Material for "When Technocratic Appointments Signal Credibility"
Alexiadou, D. (Creator), Spaniel, W. (Creator) & Gunaydin, H. (Creator), figshare, 10 Mar 2023
DOI: 10.25384/sage.c.5507221.v1
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Replication Data for: "When Technocratic Appointments Signal Credibility"
Alexiadou, D. (Creator) & Spaniel, W. (Creator), Harvard Dataverse, 26 Nov 2021
DOI: 10.7910/DVN/C6ESIZ
Dataset