Political Parties and the Business Cycle in the United States, 1948-1984
This paper tests the existence and the extent of a politically induced business cycle in the U.S. in the postâ€”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.
|Date of creation:||1988|
|Publication status:||Published in Journal of Money, Credit and Banking|
|Contact details of provider:|| Postal: Littauer Center, Cambridge, MA 02138|
Web page: http://www.economics.harvard.edu/
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- Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
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- Allen, Stuart D, 1986. "The Federal Reserve and the Electoral Cycle: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 88-94, February.
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- Chappell, Henry W, Jr & Keech, William R, 1986. "Party Differences in Macroeconomic Policies and Outcomes," American Economic Review, American Economic Association, vol. 76(2), pages 71-74, May.
- William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
- 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 473-491, June. Full references (including those not matched with items on IDEAS)
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