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Party Influence in Congress and the Economy

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  • Snowberg, Erik
  • Wolfers, Justin
  • Zitzewitz, Eric

Abstract

To understand the extent to which partisan majorities in Congress influence economic policy, we compare financial market responses in recent midterm elections to Presidential elections. We use prediction markets tracking election outcomes as a means of precisely timing and calibrating the arrival of news, allowing substantially more precise estimates than a traditional event study methodology. We find that equity values, oil prices, and Treasury yields are slightly higher with Republican majorities in Congress, and that a switch in the majority party in a chamber of Congress has an impact that is only 10-30 percent of that of the Presidency. We also find evidence inconsistent with the popular view that divided government is better for equities, finding instead that equity valuations increase monotonically, albeit slightly, with the degree of Republican control.

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Bibliographic Info

Paper provided by Regulation2point0 in its series Working paper with number 438.

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Date of creation: Dec 2006
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Handle: RePEc:reg:wpaper:438

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  1. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2006. "Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections," IZA Discussion Papers 1996, Institute for the Study of Labor (IZA).
  2. Justin Wolfers & Eric Zitzewitz, 2006. "Interpreting Prediction Market Prices as Probabilities," NBER Working Papers 12200, National Bureau of Economic Research, Inc.
  3. Chari, V V & Jones, Larry E & Marimon, Ramon, 1997. "The Economics of Split-Ticket Voting in Representative Democracies," American Economic Review, American Economic Association, vol. 87(5), pages 957-76, December.
  4. Seema Jayachandran, 2004. "The Jeffords Effect," UCLA Economics Online Papers 297, UCLA Department of Economics.
  5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  6. Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December.
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Cited by:
  1. Imai, Masami & Shelton, Cameron A., 2011. "Elections and political risk: New evidence from the 2008 Taiwanese Presidential Election," Journal of Public Economics, Elsevier, vol. 95(7), pages 837-849.
  2. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2011. "How Prediction Markets Can Save Event Studies," NBER Working Papers 16949, National Bureau of Economic Research, Inc.
  3. Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen & Kieu-Trang Nguyen, 2012. "Out of Sight, Out of Mind: The Value of Political Connections in Social Networks," Working Papers 22-2012, Singapore Management University, School of Economics.
  4. Raphaël Godefroy, 2010. "The birth of the congressional clinic," Working Papers halshs-00564921, HAL.
  5. Raphaël Godefroy, 2010. "The birth of the congressional clinic," PSE Working Papers halshs-00564921, HAL.
  6. Masami Imai & Cameron A. Shelton, 2010. "Elections and Political Risk: New Evidence from Political Prediction Markets in Taiwan," Wesleyan Economics Working Papers 2010-001, Wesleyan University, Department of Economics.

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