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Alternative Approaches to the Political Business Cycle

  • William D. Nordhaus

    (Yale University)

This paper reviews the theory and evidence concerning Political Business Cycles (PBC), which are based on the obvious facts of democratic life that voters care about the economy while politicians care about power. The first section provides an overview of different approaches to political cycles, describing five models that have been used in different contexts. The next two sections review major theoretical issues, with attention to the "microfoundations" of politico-economic systems, an exploration of the implications of ideological parties for political equilibria, and a formal analysis of a number of different PBC models. The empirical sections begin with an analysis of two important empirical questions in PCB models: whether voters are ultrarational and whether parties are ideological or opportunistic. The final section then examines historical and econometric evidence to determine the importance of political cycles in macroeconomic activity.

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Article provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.

Volume (Year): 20 (1989)
Issue (Month): 2 ()
Pages: 1-68

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Handle: RePEc:bin:bpeajo:v:20:y:1989:i:1989-2:p:1-68
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  1. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  2. Wittman, Donald, 1977. "Candidates with policy preferences: A dynamic model," Journal of Economic Theory, Elsevier, vol. 14(1), pages 180-189, February.
  3. Frey, Bruno S & Schneider, Friedrich, 1978. "A Politico-Economic Model of the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(350), pages 243-53, June.
  4. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  5. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 1-16, January.
  6. Alberto Alesina & Howard Rosenthal, 1988. "Partisan Cycles in Congressional Elections and the Macroeconomy," NBER Working Papers 2706, National Bureau of Economic Research, Inc.
  7. Frey, Bruno S & Schneider, Friedrich, 1978. "An Empirical Study of Politico-Economic Interaction in the United States," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 174-83, May.
  8. Bruno S. Frey, 1978. "Keynesian Thinking in Politico-Economic Models," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 1(1), pages 71-81, October.
  9. MacRae, C Duncan, 1977. "A Political Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 239-63, April.
  10. Ray C. Fair, 1976. "The Effects of Economic Events on Votes for President," Cowles Foundation Discussion Papers 418, Cowles Foundation for Research in Economics, Yale University.
  11. Nathaniel Beck, 1982. "Does there exist a political business cycle: A Box-Tiao analysis," Public Choice, Springer, vol. 38(2), pages 205-209, January.
  12. Susan Lepper, 1974. "Voting behavior and aggregate policy targets," Public Choice, Springer, vol. 18(1), pages 67-81, June.
  13. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
  14. Frey, Bruno S, 1974. "The Politico-Economic System: A Simulation Model," Kyklos, Wiley Blackwell, vol. 27(2), pages 227-54.
  15. Leroy Laney & Thomas Willett, 1983. "Presidential politics, budget deficits, and monetary policy in the United States; 1960–1976," Public Choice, Springer, vol. 40(1), pages 53-69, January.
  16. Rosenthal, Howard & Alesina, Alberto, 1989. "Partisan Cycles in Congressional Elections and the Macroeconomy," Scholarly Articles 4553031, Harvard University Department of Economics.
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