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Business Cycles, Political Incentives and the Macroeconomy: Comparison of Models


  • Reichenvater, Arno


Politicians and political parties are faced with the problem of being elected into power, and later, of being re-elected. These political ambitions are often fuelled by policies that affect the entire economy and business cycles. The purpose of this paper is to compare the various models used to describe how political decision-making may affect business cycles. Both opportunistic and partisan models, and exchange rate manipulation are examined, and empirical evidence is used to view the validity of the models.

Suggested Citation

  • Reichenvater, Arno, 2007. "Business Cycles, Political Incentives and the Macroeconomy: Comparison of Models," MPRA Paper 5527, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:5527

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    References listed on IDEAS

    1. Steven M. Sheffrin, 1989. "Evaluating Rational Partisan Business Cycle Theory," Economics and Politics, Wiley Blackwell, vol. 1(3), pages 239-259, November.
    2. 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.
    3. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    4. repec:cup:apsrev:v:71:y:1977:i:04:p:1467-1487_26 is not listed on IDEAS
    5. Carlsen, Fredrik, 1997. "Opinion Polls and Political Business Cycles: Theory and Evidence for the United States," Public Choice, Springer, vol. 92(3-4), pages 387-406, September.
    6. Dornbusch, Rudiger, 1987. "Exchange Rate Economics: 1986," Economic Journal, Royal Economic Society, vol. 97(385), pages 1-18, March.
    7. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 1-16.
    8. Linda Veiga & Francisco Veiga, 2007. "Political business cycles at the municipal level," Public Choice, Springer, vol. 131(1), pages 45-64, April.
    9. Abrams, Richard K & Froyen, Richard & Waud, Roger N, 1980. "Monetary Policy Reaction Functions, Consistent Expectations, and the Burns Era," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(1), pages 30-42, February.
    10. 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.
    11. J. Bradford De Long, 1999. "Introduction to the Symposium on Business Cycles," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 19-22, Spring.
    12. J. E. Stiglitz, 1999. "Introduction," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 28(3), pages 249-254, November.
    13. Paldam, Martin, 1979. " Is There an Election Cycle? A Comparative Study of National Accounts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(2), pages 323-342.
    14. Fredrik Carlsen, 1997. "Counterfiscal policies and partisan politics: evidence from industrialized countries," Applied Economics, Taylor & Francis Journals, vol. 29(2), pages 145-151.
    15. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
    16. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
    17. 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.
    18. Alesina, Alberto, 1988. "Credibility and Policy Convergence in a Two-Party System with Rational Voters," American Economic Review, American Economic Association, vol. 78(4), pages 796-805, September.
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    business cycles; partisan models; opportunistic models; politics;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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