Where does insulation collide?

The argument that a floating exchange rate can insulate a domestic economy from disturbances abroad originates with Friedman's 1953 The Case for Flexible Exchange Rates, which held that letting the currency's price adjust absorbs foreign shocks that a fixed rate would otherwise force onto domestic wages and output. Mundell's 1963 model in the Canadian Journal of Economics and Political Science formalised the claim, showing how the degree of insulation depends on capital mobility and on whether a shock is monetary or real. Here insulation is a property of a policy regime measured across a whole economy, not a material fitted to a wall or a rule that shields a bureau from elected officials.[1][2]

Unit

A policy regime's capacity to hold domestic output and prices steady when a foreign shock hits

Recovery means

Not applicable

Measured by

By how much domestic variables move under a given shock across exchange-rate regimes, in models or regressions

Moe's 1989 chapter The Politics of Bureaucratic Structure established insulation as the deliberate design of an agency to shield it from political control, arguing that the winners of a policy fight lock in their program with devices such as fixed terms, for-cause removal protection, independent funding, or placement outside the regular executive hierarchy. Lewis's 2003 Presidents and the Politics of Agency Design later coded how insulated each newly created agency is and traced the pattern across administrations. The referent is a feature of institutional design measured across agencies, and it is unrelated to a material that blocks heat or a currency regime that buffers a national economy.[3][4]

Unit

One agency's degree of structural protection from political control

Recovery means

Not applicable

Measured by

By coding structural features (fixed terms, removal protection, funding, location) into an insulation index across agencies