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Is the political business cycle for real?

Listed author(s):
  • S. Brock Blomberg
  • Gregory D. Hess

This paper's macroeconomic model combines features from both real and political business cycle models. It augments a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities: First, that on average the economy expands early under Democratic presidents and contracts early under Republican presidents. Second, that presidents whose parties successfully retain the presidency have stronger-than-average growth in the second half of their terms. The model generates both of these features in conformity with U.S. post-World War II data.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0016.

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Date of creation: 2000
Handle: RePEc:fip:fedcwp:0016
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  1. Christopher J. Waller, 1998. "Appointing the median voter of a policy board," Working Paper 9802, Federal Reserve Bank of Cleveland.
  2. David S. Bizer & Steven N. Durlauf, 1990. "Testing the Positive Theory of Government Finance," NBER Working Papers 3349, National Bureau of Economic Research, Inc.
  3. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  4. Alberto Alesina, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 651-678.
  5. Alberto Alesina & Jeffrey Sachs, 1986. "Political Parties and the Business Cycle in the United States, 1948-1984," NBER Working Papers 1940, National Bureau of Economic Research, Inc.
  6. Ni, Shawn, 1995. "An empirical analysis on the substitutability between private consumption and government purchases," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 593-605, December.
  7. Sachs, Jeffrey & Alesina, Alberto, 1988. "Political Parties and the Business Cycle in the United States, 1948-1984," Scholarly Articles 4553026, Harvard University Department of Economics.
  8. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 1-16.
  9. Seater, John J., 1985. "On the construction of marginal federal personal and social security tax rates in the U.S," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 121-135, January.
  10. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
  11. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  12. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  13. Ball, Laurence & Mankiw, N. Gregory, 1994. "A sticky-price manifesto," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 127-151, December.
  14. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Staff Report 102, Federal Reserve Bank of Minneapolis.
  15. Alesina, Alberto & Londregan, John, 1993. "A Model of the Political Economy of the United States," Scholarly Articles 4552529, Harvard University Department of Economics.
  16. Plosser, C.I., 1989. "Understanding Real Business Cycles," Papers 89-03, Rochester, Business - General.
  17. Alberto Alesina & John Londregan & Howard Rosenthal, 1991. "A Model of the Political Economy of the United States," NBER Working Papers 3611, National Bureau of Economic Research, Inc.
  18. Hess, Gregory D & Iwata, Shigeru, 1997. "Measuring and Comparing Business-Cycle Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(4), pages 432-444, October.
  19. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
  20. Marianne Baxter & Robert G. King, 1991. "Productive externalities and business cycles," Discussion Paper / Institute for Empirical Macroeconomics 53, Federal Reserve Bank of Minneapolis.
  21. Ellen R. McGrattan, 1991. "The macroeconomic effects of distortionary taxation," Discussion Paper / Institute for Empirical Macroeconomics 37, Federal Reserve Bank of Minneapolis.
  22. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
  23. Robert J. Barro, 1981. "On the Predictability of Tax-Rate Changes," NBER Working Papers 0636, National Bureau of Economic Research, Inc.
  24. Alberto Alesina & Guido Tabellini, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 403-414.
  25. Roubini, Nouriel & Alesina, Alberto, 1992. "Political Cycles in OECD Economies," Scholarly Articles 4553025, Harvard University Department of Economics.
  26. Torsten Persson & Lars E. O. Svensson, 1989. "Why a Stubborn Conservative would Run a Deficit: Policy with Time-Inconsistent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 325-345.
  27. Jon Faust & John S. Irons, 1996. "Money, politics and the post-war business cycle," International Finance Discussion Papers 572, Board of Governors of the Federal Reserve System (U.S.).
  28. Ellen R. McGrattan, 1994. "A progress report on business cycle models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-16.
  29. Ray C. Fair, 1996. "Econometrics and Presidential Elections," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 89-102, Summer.
  30. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  31. S. Brock Blomberg & Gregory D. Hess, 1996. "Politics and exchange rate forecasts," Research Working Paper 96-02, Federal Reserve Bank of Kansas City.
  32. Kuehlwein, Michael, 1998. "Evidence on the substitutability between government purchases and consumer spending within specific spending categories," Economics Letters, Elsevier, vol. 58(3), pages 325-329, March.
  33. Faust, Jon & Irons, John S., 1999. "Money, politics and the post-war business cycle," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 61-89, February.
  34. Hess, Gregory D & Orphanides, Athanasios, 1995. "War Politics: An Economic, Rational-Voter Framework," American Economic Review, American Economic Association, vol. 85(4), pages 828-846, September.
  35. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  36. S. Brock Blomberg & Gerald D. Cohen, 1994. "Scoring political economy models: a multiple equilibrium approach," Research Paper 9410, Federal Reserve Bank of New York.
  37. Alberto Alesina & Nouriel Roubini, 1992. "Political Cycles in OECD Economies," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 663-688.
  38. Ludvigson, Sydney, 1996. "The macroeconomic effects of government debt in a stochastic growth model," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 25-45, August.
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