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Policy Makers' Preferences, Party Ideology, and the Political Business Cycle

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Author Info
Stefan Krause () (Department of Economics, Emory University)
Fabio Méndez () (Department of Economics, University of Arkansas)

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Abstract

We generate data on the relative preferences of policy makers for inflation and output stability and reexamine how policy makers and political parties behave for 24 countries by using this new approach. This behavior is essential in both the partisan cycle models and the opportunistic political cycle analysis. Our evidence suggests that right-wing parties exhibit a higher relative preference toward stabilizing inflation than left-wing parties. We obtain mixed results on the opportunistic behavior of incumbent parties. Finally, when we analyze the behavior of left and right ideologies separately, we find overwhelming support for party resemblance in the electoral year and strong evidence of opportunistic conduct by right-wing parties.

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Publisher Info
Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 71 (2005)
Issue (Month): 4 (April)
Pages: 752-767
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Handle: RePEc:sej:ancoec:v:71:4:y:2005:p:752-767

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

References listed on IDEAS
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  1. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
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  3. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Blackwell Publishing, vol. 42(2), pages 169-90, April. [Downloadable!] (restricted)
  4. Stephen G. Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2006. "Has Monetary Policy become more Efficient? a Cross-Country Analysis," Economic Journal, Royal Economic Society, vol. 116(511), pages 408-433, 04. [Downloadable!] (restricted)
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  5. Benoit Mojon & Gert Peersman, 2001. "A VAR description of the effects of monetary policy in the individual countries of the Euro area," Working Paper Series 092, European Central Bank. [Downloadable!]
  6. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January. [Downloadable!] (restricted)
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  9. Stefan Krause, 2003. "Optimal Monetary Policy and the Equivalency between the One-Period AD-AS Model and the Forward-Looking New Keynesian Model," Emory Economics 0317, Department of Economics, Emory University (Atlanta). [Downloadable!]
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  10. David Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring. [Downloadable!] (restricted)
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  11. Castro, Vitor & Veiga, Francisco Jose, 2004. "Political business cycles and inflation stabilization," Economics Letters, Elsevier, vol. 83(1), pages 1-6, April. [Downloadable!] (restricted)
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  12. Carlo A. Favero & Riccardo Rovelli, . "Modeling and identifying central banks' preferences," Working Papers 148, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  13. Beck, Thorsten & Clarke, George & Groff, Alberto & Keefer, Philip & Walsh, Patrick, 2000. "New tools and new tests in comparative political economy - the database of political institutions," Policy Research Working Paper Series 2283, The World Bank. [Downloadable!]
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  15. Stephen G. Cecchetti & Michael Ehrmann, 1999. "Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers' Preferences and Outcomes," NBER Working Papers 7426, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Stefan Krause, 2003. "Why Should Policy Makers Care About Inflation and Output Variability? The Role of Monetary Policy Stabilization under Asymmetric Information," Emory Economics 0313, Department of Economics, Emory University (Atlanta). [Downloadable!]
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  22. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Social Choice: A Mean Voter Theorem," Econometrica, Econometric Society, vol. 59(1), pages 1-23, January. [Downloadable!] (restricted)
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  23. Haynes, Stephen E & Stone, Joe A, 1990. "Political Models of the Business Cycle Should Be Revived," Economic Inquiry, Oxford University Press, vol. 28(3), pages 442-65, July.
  24. Cecchetti, Stephen G & McConnell, Margaret M & Perez-Quiros, Gabriel, 2002. "Policymakers' Revealed Preferences and the Output-Inflation Variability Trade-Off: Implications for the European System of Central Banks," Manchester School, University of Manchester, vol. 70(4), pages 596-618, Special I. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stefan Krause & Fabio Mendez, 2006. "Does Opportunism Pay Off? A Study of Vote Functions and Policy Preferences," Emory Economics 0604, Department of Economics, Emory University (Atlanta). [Downloadable!]
  2. Stefan Krause & Fabio Mendez, 2005. "Institutions, Arrangements, and Preferences for Inflation Stability: Evidence and Lessons from a Panel Data Analysis," Emory Economics 0501, Department of Economics, Emory University (Atlanta). [Downloadable!]
    Other versions:
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