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The Information Content of Elections and Varieties of the Partisan Political Business Cycle

Listed author(s):
  • Cameron A. Shelton

    ()

    (Economics Department, Wesleyan University)

This event study uses economic forecasts and opinion polls to measure the response of expectations to election surprise. Use of forecast data complements older work on partisan cycles by allowing a tighter link between election and response thereby mitigating concerns of endogeneity and omitted variables. I fin that forecasters respond swiftly and significantly to election surprise. I further argue that the response ought to vary across countries with different institutional foundations. In support, I find that there exist three distinct patterns in forecasters' responses to partisan surprise corresponding to Hall and Soskice's three varieties of capitalism. In liberal market economies, forecasters expect the left to achieve jobless growth with virtually no cost to inflation. In Mediterranean market economies, forecasters expect the left to achieve deliver both higher output growth and lower unemployment but with higher inflation. And in coordinated market economies, forecasters expect the left to deliver lower growth, higher unemployment, and higher inflation.

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File URL: http://repec.wesleyan.edu/pdf/cashelton/2007003_shelton.pdf
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Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2007-003.

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Length: 30 pages
Date of creation: Apr 2007
Handle: RePEc:wes:weswpa:2007-003
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  8. Alberto Alesina & Nouriel Roubini, 1992. "Political Cycles in OECD Economies," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 663-688.
  9. Berlemann, Michael & Markwardt, Gunther, 2003. "Partisan cycles and pre-electoral uncertainty," Dresden Discussion Paper Series in Economics 01/03, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
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  15. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information: A Model of Monetary Nonneutrality and Structural Slumps," Harvard Institute of Economic Research Working Papers 1941, Harvard - Institute of Economic Research.
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