Political Parties and the Business Cycle in the United States, 1948-1984
AbstractThis paper tests the existence and the extent of a politically induced business cycle in the U.S. in the postâ€”World War II period. The cycle described in this paper is different from the traditional "political business cycle" of Nordhaus. It is based on a systematic difference between the monetary policies of the two parties in a model with labor contracts. From an explicit optimization problem we derive a system of equations for output and money growth. Then we successfully test the non-linear restriction imposed by the theory on the parameters of the system of equations. We cannot reject the hypothesis that money growth has been systematically different under the two types of administration and that this difference contributes to explain output fluctuations.
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Bibliographic InfoPaper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4553026.
Date of creation: 1988
Date of revision:
Publication status: Published in Journal of Money, Credit and Banking
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