The Political Economy of Financial Markets

Abstract

The relationship between politics and financial markets is central for many, if not most, political economy arguments. The existing literature focuses on the effect of domestic and international political interests, institutions and policy decisions on returns and volatility in stock, bond and foreign exchange markets. This research bears implications for three major debates in political science: the distributive effects of politics; globalization and state autonomy; and the political roots of economic credibility and its tensions with democratic accountability. While the study of politics and financial markets is complicated by several theoretical and empirical challenges, recent methodological innovations in political research provide a window of opportunity for the development of the field.

Keywords: partisanship; political institutions; political interests; economic policy; financial markets; redistribution; globalization; credibility; accountability; crises