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Political Parties and the Business Cycle in the United States, 1948-1984

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  • Alberto Alesina
  • Jeffrey Sachs

Abstract

This paper tests the existence and the extent of a politically induced business cycle in the U.S. in the post-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 Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1940.

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Date of creation: May 1986
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Handle: RePEc:nbr:nberwo:1940

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  1. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 651-78, August.
  2. Barro, Robert J, 1978. "Unanticipated Money, Output, and the Price Level in the United States," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 549-80, August.
  3. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  4. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  5. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  6. Abrams, Richard K & Froyen, Richard & Waud, Roger N, 1980. "Monetary Policy Reaction Functions, Consistent Expectations, and the Burns Era," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(1), pages 30-42, February.
  7. Stigler, George J, 1973. "General Economic Conditions and National Elections," American Economic Review, American Economic Association, vol. 63(2), pages 160-67, May.
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Cited by:
  1. Petra Gerlach-Kristen & Ellen E. Meade, 2010. "Is There a Limit on FOMC Dissents? Evidence from the Greenspan Era," Working Papers 2010-16, American University, Department of Economics.
  2. Christian Bjørnskov & Niklas Potrafke, 2013. "The size and scope of government in the US states:Does party ideology matter?," Ifo Working Paper Series Ifo Working Paper No. 162, Ifo Institute for Economic Research at the University of Munich.
  3. Jablanović, Vesna D., 2013. "The Government Spending On Agribusiness Sector Model," 50th Anniversary Seminar, Agriculture and Rural Development: Challenges of Transition and Integration Processes, September 27, 2013 161816, University of Belgrade, Department of Agricultural Economics, Faculty of Agriculture.
  4. Roman Kraussl & Andre Lucas & David R. Rijsbergen & Pieter Jelle van der Sluis & Evert B. Vrugt, 2013. "Washington Meets Wall Street: A Closer Examination of the Presidential Cylce Puzzle," LSF Research Working Paper Series 13-4, Luxembourg School of Finance, University of Luxembourg.
  5. repec:psl:bnlaqr:1992:33 is not listed on IDEAS
  6. Price, Simon, 1997. " Political Business Cycles and Macroeconomic Credibility: A Survey," Public Choice, Springer, vol. 92(3-4), pages 407-27, September.
  7. Chang, Koyin & Kim, Yoonbai & Tomljanovich, Marc & Ying, Yung-Hsiang, 2013. "Do political parties foster business cycles? An examination of developed economies," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 212-226.
  8. Goodell, John W. & Vähämaa, Sami, 2013. "US presidential elections and implied volatility: The role of political uncertainty," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 1108-1117.
  9. S. Brock Blomberg & Gregory D. Hess, 2000. "Is the political business cycle for real?," Working Paper 0016, Federal Reserve Bank of Cleveland.
  10. Dimitrios D. Thomakos & Gikas A. Hardouvelis, 2007. "Consumer Confidence and Elections," Working Paper Series 42-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
  11. Fox, Gerald T., 2012. "Macroeconomic time consistency and wartime presidential approval," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 891-902.
  12. Jakob De Haan & Jan Egbert Sturm, 1992. "The Case for Central Bank Independence," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 45(182), pages 305-327.
  13. Blomberg, S. Brock, 2000. "Modeling political change with a regime-switching model," European Journal of Political Economy, Elsevier, vol. 16(4), pages 739-762, November.
  14. Ellen E. Meade & D. Nathan Sheets, 2002. "Regional influences on U.S. monetary policy: some implications for Europe," LSE Research Online Documents on Economics 20091, London School of Economics and Political Science, LSE Library.

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