Domestic Preferences and External Constraints: The Bundesbank between Internal and External Pressures by Ton Notermans Graduate Student Dept of Political Science, M1. and CES, Harvard University, 1991 ‘Working Paper Series #33 This paper provides an important reassessment of the factors that affect macroeconomic policy making in the European nations. Notermans shows that many of the conventional models based on the power of the left, institutional or cultural variables cannot account for the course of macroeconomic policy. Instead he argues for the critical importance of international economic variables. His analysis attempts to account for both the policies of the German Bundesbank and the failures of neo-corporatism in the smaller European nations.Abstract ‘This essay argues that present theories on the determinants of economic policies suffer from a narrow focus on domestic variables and hence fail to give an accurate account of crucial policy decisions. A study of the causes and consequences of German monetary policy since the end of Bretton Woods shows that 1.) The shift to a restrictive monetary policy stance in five small corporatist countries bordering on Germany is a primarily a reflection of their lack of policy autonomy vis a vis the decisions of the Bundesbank rather than the result of a domestic balance of forces in favor of such policies. 2) The policy of the Bundesbank itself cannot be adequately understood on the assumption of an overriding priority of price stability. Despite its shit to. monetary targeting in 1974, the Bundesbank has allowed its tatgets to be missed in ten of the last fifteen years. It is argued that this fallure to adhere to its own targets reflects the fact that the role of the D-Mark as second line reserve currency fas frequently forced the Bundesbank to give priority to stabilization of the D-Mark Dollar rate.