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Electoral Cycles in Macroeconomic Forecasts

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  • Cipullo, Davide

    (Universit`a Cattolica del Sacro Cuore)

  • Reslow, André

    (Payments Department, Central Bank of Sweden)

Abstract

This paper documents the existence of electoral cycles in GDP growth forecasts released by governments. In a theoretical model of political selection, we show that governments release overly optimistic GDP growth forecasts ahead of elections to increase the reelection probability. The bias arises from lack of commitment if voters are rational and from manipulation of voters’ beliefs if they do not expect the incumbent to be biased. Using high-frequency forecaster-level data from the United States, the United Kingdom, and Sweden, we document that governments overestimate short-term real GDP growth by 0.1–0.3 percentage points.

Suggested Citation

  • Cipullo, Davide & Reslow, André, 2022. "Electoral Cycles in Macroeconomic Forecasts," Working Paper Series 415, Sveriges Riksbank (Central Bank of Sweden).
  • Handle: RePEc:hhs:rbnkwp:0415
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    More about this item

    Keywords

    Electoral Cycles; Political Selection; Voting; Macroeconomic Forecasting;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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