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Activist Macroeconomic Policy, Election Effects and the Formation of Expectations: Evidence from OECD Economies

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  • David Kiefer

Abstract

We examine the explanatory power of a political—business cycle theory in which governments practice short‐run policy to lessen the impact of exogenous shocks. Governments have ideological objectives with respect to macroeconomic performance, but are constrained by an augmented Phillips curve. The most prominent version, the rational partisan model, incorporates forward‐looking expectations. This model can be compared to a competing model based on backward‐looking expectations. Alesina and Roubini's recent advocacy of the rational model uses OECD data. Our reconsideration of the same data, updated to 1995, suggests that the adaptive expectations version offers a better explanation than the rational one.

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  • David Kiefer, 2000. "Activist Macroeconomic Policy, Election Effects and the Formation of Expectations: Evidence from OECD Economies," Economics and Politics, Wiley Blackwell, vol. 12(2), pages 137-154, July.
    • Handle: RePEc:bla:ecopol:v:12:y:2000:i:2:p:137-154
    DOI: 10.1111/1468-0343.00072
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    Cited by:

    1. Michael Berlemann & Gunther Markwardt, 2007. "Unemployment and Inflation Consequences of Unexpected Election Results," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1919-1945, December.
    2. Ferré, Montserrat & Manzano, Carolina, 2014. "Rational Partisan Theory with fiscal policy and an independent central bank," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 27-37.
    3. Elias Sanidas, 2014. "The Greek Non-Paradigm of Economic and Business Development, and Comparisons with South Korea," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 64(3), pages 30-48, July-Sept.
    4. David Kiefer, 2011. "Stabilization and expectations in a state space model of interconnected economies, a dynamic panel study," Working Paper Series, Department of Economics, University of Utah 2011_15, University of Utah, Department of Economics.
    5. Kiefer, David, 2015. "Targets and lags in a two-equation model of US stabilization," Economic Modelling, Elsevier, vol. 44(C), pages 18-24.
    6. David Kiefer, 2008. "Inflation Targeting, the Natural Rate and Expectations," Working Paper Series, Department of Economics, University of Utah 2008_03, University of Utah, Department of Economics.
    7. Berlemann, Michael & Markwardt, Gunther, 2006. "Variable rational partisan cycles and electoral uncertainty," European Journal of Political Economy, Elsevier, vol. 22(4), pages 874-886, December.
    8. David Kiefer, 2005. "Partisan stabilization policy and voter control," Public Choice, Springer, vol. 122(1), pages 115-132, January.
    9. David Kiefer, 2008. "New Keynesian Endogenous Stabilization in a Panel of Countries," Working Paper Series, Department of Economics, University of Utah 2008_19, University of Utah, Department of Economics.
    10. Mattias Erlandsson, 2004. "Partisan Differences in Swedish Macroeconomic Policy," Public Choice, Springer, vol. 120(1_2), pages 205-220, July.
    11. David Kiefer, 2010. "A 2-Equation Model of the North Atlantic Economies, a Dynamic Panel Study," Working Paper Series, Department of Economics, University of Utah 2010_06, University of Utah, Department of Economics.
    12. David Kiefer, 2013. "Are governments able to lean against the macroeconomic wind?," Working Paper Series, Department of Economics, University of Utah 2013_14, University of Utah, Department of Economics.

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