partisan political business cycle

According to the theory, resolution of uncertainty about electoral consequences and partisan differences in economic behavior produce downturns following victories of conservative parties and booms following victories of liberal parties. /H [ 797 498 ] <> We find permanent partisan effects in the conditional variance but not in returns. stream The results indicate that the PBC hypothesis is … endobj Keywords: International Corporate Finance, Firm Value, Political Economy, Classical Partisan Theory, Political Business Cycle, Firm … The conditional volatility of the returns is higher during the periods in which a leftist party or a coalition government is in office. endobj The "political business cycle" model of Nordhaus predicts pre—electoral fast growth and low �(lTw�TW��_��3 s׻��U�U�^=z��[ �7]��$J��[��0�l$�m �jb�aA0��Y(��Ks��l��w�� 6� ��-�S��8�~A��aA#�K�i��Z�M��W��6^ ��B~n.ɐ~"��[�Z޽�?��8�?��{�8��E�,d�P ��.�$��N��&��V��N��q?��꾟F�n�7��گx@��l6}�V��\V��y��p��O�_��`��O�}�7�?��H߯��k��_��u�u�?��$�ZڱN��U��4z��t�^��5�~/w�Z��M4B��OH%��`1�^�.� ��Dq��N��A ��D0��vKOv*�i��!�V�s!x�,!7�e&CL�z��}H.��C�g�Ay��2(C�A+ xk��#��t 9�CM�ރ@�u��!��7�� r0��@��a�L�#��5iSm��g��a� � A8g(�A��zACZ�!A��63��apϛV~s��ZG��ۤ��ϐn�Fsv�B�� )�i�8j��S��(r?8��A8��Pw�w@�ރ�~� ��3��gUxV��G�Ä,m�F�=&��-aK��T��&�ç� υ�J �i��P�ʏ��Hl74�̈́f8i��ɻ��ݯ{w��;��H=:W�t:A�� ��h�8��__�zO��턛�'��I�ZI�O�N��z<7��k�=�~�}�Z��W��7t�o�:M�I?�?��w�}��OC��5��=��N�$�]?��z��cջk�w�O��믥��S��{��ڪ��+��W�mUG�I�V��/�o��u�[��0�ͭt��C]��Z׿DH��үK�t�߶��믮��~��ѿ�-��8��j��5��kk�_��s_Ӯ:k�V��i7��V��f��0��^ ��~��Woa�D��}��ru��_��l��\�;�mc�� _�_�n��/��{��Z�w� �o�� i��_��t7��|��߿�7��߮��n��z��{�� 0�6��{��ǣ��o�w��;��W��־Aq޽��ݯw[��~��z��\};_�om��ݵz��_�]&�ҽ/}���m�]��v�0�[��h�״��Ko��u��v�k��i�\~�}�P�U��i��n�Ն��V��+m-� j�I��v�t�A��A�i��l4�qI��lPB��G6^�� [lK��k�4��°��k��G};Tj�ꃥ��i0� <>/Length 50702>> 0000005806 00000 n This paper focuses on alternative specifications ofpartisan political business cycles (Partisan Theory,Rational Partisan Theory and hysteresis-augmentedRPT). First, partisan theories stress the difference of fiscal and monetary preferences between parties. endstream 98 0 obj <> Jac C. Heckelman, Wake Forest University Macroeconomic Performance and Elections. %�� Section 4. summarizes the paper. Theories n Political Business Cycles endobj In section 3. attention is given to some empirical evidence of various countries. European Journal of POLITICAL European Journal of Political Economy ECONOMY Voi. endobj We also find that the stock market returns temporarily decreases (increases) at the beginning of a right‐wing (left‐wing) government, providing evidence in favor of RPT. Introduction. /Size 106 1. <> I find that forecasters respond swiftly and significantly to election surprise. 86 0 obj endobj 0000000015 00000 n <> x�c```"Y�� 89 0 obj These papers share a "pre—rational expectations" model of the economy and are based upon an exploitable "Phillips curve". endobj 2. /L 1157474 <> H_��C��+��o�f��>o��o��}��o��o��u{�@��?��Q��?�61�m��'��C��v�xL��~��d��x��o��z�yy ��n�|O�~߆{��?��_��o�|�'��7��C��im�{��:[��/Xl}��o!�� K��}��m��-^��|��߿pߺ��;k��[��v�>Aq�]�� [KoJ�\��v�m>�o��8��m��I}Rm-�}��ޮ�u��^��~��M��a��i]�v�Z��4�-��W�_�w�M��m�L Ӎ�M��i��!H��K[m��Sa��-��A�h&�M4�t��$;a��l4��SMl%j�~��2C��P� ��MP`�5��4�H7 6(&ڦ��H7M40�(0�j��id BY�l�/i��A��A�b�n�M �R 4�C�dt�&Z�@�ǈ�[ Unlimited viewing of the article/chapter PDF and any associated supplements and figures. 0000001605 00000 n endobj t-4. This theory, pioneered by Hibbs (1977) and Alesina (1987), integrates the macroeconomic performance and the orientation of the governing party. endobj 104 0 obj Use the link below to share a full-text version of this article with your friends and colleagues. We find that partisan return differentials are, instead, likely due to differences in cash flows - capital income growth - during the first years of presidential administrations as predicted by the rational partisan model of the business cycle. /ID[<0BF04BF47AAE857A8A6A0064CD4BE251><40EB86DD3A28A19E14299460C40A722E>] Enter your email address below and we will send you your username, If the address matches an existing account you will receive an email with instructions to retrieve your username, I have read and accept the Wiley Online Library Terms and Conditions of Use, https://doi.org/10.1111/j.1468-0343.2012.00397.x. 88 0 obj 94 0 obj Analyzing American presidential elections as far back as 1916, Ray Fair (1978) has shown that macroeconomic conditions consistently affect party vote shares. Initially formalized by Nordhaus (1975), opportunistic cycles are the … There are two streams of theories in the literature on the political business cycle. The results indicate that the PBC hypothesis is not supported by the data. 87 0 obj Keywords Political business cycle • Varieties of capitalism • Forecast data • Opinion polls JEL Classification E32 E63 P16 P51 1 Introduction 1.1 An … xref /E 66025 \opportunistic" political cycles: the party in power stimulates the economy before elections to improve its reelection probability. /O 88 It elaborates on analogies of the natural ratehypothesis underlying all specifications and thecointegration concept. 0000000797 00000 n 95 0 obj 92 0 obj The partisan business cycle suggests that cycles result from the successive elections of administrations with different policy regimes. While searching for political business cycles in monetary policy there has often been a second aspect of political economics investigated simultaneously, the partisan theory. << 0000004409 00000 n << /Linearized 1.0 Political Business Cycles and Central Bank Independence John Maloney* Andrew Pickering** Kaddour Hadri*** September 2002 This paper develops a dynamic model of Rational Partisan Business Cycles (RPBCs), in which wage contracts overlap elections and wage setters have to make a … This of course in the late 1980s and early 1990s led to the development of models of the political business cycle that took into account the forward-looking behavior of economic agents. /Root 87 0 R 0000007194 00000 n However, despite decades of scholarship on the subject, the economic implications of these cycles … endobj �pǼ{��~��V�~�n�oo�k_��z��{��|�{��+��o�7��V�.��8_�]�� 0000000730 00000 n We find that partisan return differentials are, instead, likely due to differences in cash flows - capital income growth - during the first years of presidential administrations as predicted by the rational partisan model of the business cycle. /T 1155710 0000006987 00000 n Learn about our remote access options. 0000004190 00000 n �\� @og�M�~��4׽�^��B� d'�n997r9�A?pA�a 0000061075 00000 n “The Political Business Cycle.” Most famously Alberto Alesina wrote a number of very influential articles on what have come to be known as Rational Partisan Theory (RPT). View the article PDF and any associated supplements and figures for a period of 48 hours. 101 0 obj 93 0 obj <> period. Partisan Business Cycles Second key idea is that parties have different preferences about inflation/output. If you have previously obtained access with your personal account, please log in. patterns in forecasters' responses to partisan surprise corresponding to Hall and Soskice's three varieties of capitalism. /MediaBox[0 0 414 648] and Lindbeck (1976) on "opportunistic" cycles and by Hibbs (1977) on "partisan" cycles. 86 20 <> �,�\&0��|�V��y˧��O�љ||��H��|N��8b�k��pK��x�}�5�-�)pt%Nx�5��!�.%��ə��4�:}��n��hs��k��)ǜ]o Z�aY�+GO��Eͥ!�n\��R5Y�,�ͭ��dY�j@׍�>J-~-�� '.NP�z*y��״��E��DN� �խ�ќ��j��H�3Tk��Ҕ�%+s$�Ҷ(i.^��T�jj4Wv,Po O'P�W.GW��6�M�[��T /L�JVY��P��ر��=@��ɱ�ah�"��A��.8�H��(��2d�2d��1��0ıh3��X0�30�+��E(b�P�M`1bH� v��A /Parent 78 0 R 0000008374 00000 n stream Whereas leftist parties are expected to boost real economic activity (employment), rightist parties are … 99 0 obj 91 0 obj Republicans are anti-inflation (bond holders, financiers, pensioners). In his seminal article and subsequent book, Hibbs (1977, 1987) presents evidence of partisan effects on output, un-employment, and inﬂation in a dozen industrialized democracies. /Type/Page 97 0 obj endobj b� t�M� �RTL$�Kv��6I��+��x��}4a2�M4!hZ)� (i4�L(L4��B6)�7b�h �bBU�� z��[��'p�p�a+�n�� 0��9�VA�i��v� �A��J+�Hr ��,�uY��2D� ��d0r� �!�a�p@�lVYRA��}H0�,�iC?^fNA��9�i� �,��s�P3X`�#�@�8�@7!a�P5P,�H#I��'*�Ӧ�T�l&h;�.��)�d&�r��(23g�s6Hd�!/�86�/��6��=�M3B�|�3� 5��L(nᠻ��w��wk�a��j2��H��<28!p��w��i�@�6�w�� 4�3m�6�H��66��i��V�[�j�"N* ?T�{�N�� m��@�>�A�"��m�Vh=4 �P�fph��k�[ݴ��7OzO�� |i�|-ڷjlg��mh��#�� {��~�߷�i>߷��>��6��oO��uF�̳0�xZU��4?��ݥw��{K��k��+��׾0��Ưǧ��k�j��?�j�k�B��V�}��W��5��;{��{\¯^��?��1��w[�! Others have realistically argued that diﬁerent parties may have diﬁerent preferences over in°ation and output or unemployment outcomes and, therefore, we should observe \partisan" political cycles. A partisan postelectoral cycle was argued to be consistent with rational expectations in the important work by Alesina (1987, 1988). and you may need to create a new Wiley Online Library account. <> This paper studies whether the evidence supports the political business cycle (PBC) theory, partisan theory (PT) and rational partisan theory (RPT) by using stock market data from Turkey, a rapidly growing developing economy. /Resources <>/ExtGState<>/XObject<>/ProcSet[/PDF/Text/ImageB]>> 0000008587 00000 n >> %%EOF 102 0 obj 100 0 obj �� d��`s8a r�¿P�07rx�4i�A�2�k��(6k�d2A\sY�o6��r >> The “Partisan Theory” of macroeconomic policy is based on the idea that political parties typically weight nominal and real economic performance differently, with left-party governments being more inclined than right-party ones to pursue expansive policies designed to yield lower unemployment and higher growth, but running the risk of extra inflation. 397 96 0 obj /Contents 103 0 R Previous research concludes that partisan return differentials are anomalous since they are not due to differences in required returns. �D��Ã��)�G��#իG*�3ӟ��Z{�i��A?u�M��6��n��^��o��i��\��M��?��טXkk�TՇ�w��C��l?� �ca��-��o��+}u��i�� 6��P�bW}�p~��&��m�q{I��lrC�;��o�V��G��ȷ��Ч]o�_��T�$�?oI�M�޿w��k��i�z ��5�VI0��B��M��ٚ0 �1�).��M:��a:��0��#�i�A�A4��>�x!M��`C0�� @��-�� ~r�@�Nl xdX2!��F�H"@F�S��AJ4�Ų�,�Ր�w�L>�nck�5��. <> trailer <> I leave the link of the previous post: The Political Business Cycle (Economic Political Cycle). <> In addition, we examine the impact of political events on the returns and volatility of the stock market. 90 0 obj ‘Partisan’ political business cycles are ﬂuctuations in macroeconomic vari-ables over or between electoral cycles resulting from leaders having different policy objectives. endobj 0000009780 00000 n As we mentioned earlier, the opportunist and the partisan emerge in two stages. This event study uses economic forecasts and opinion polls to measure the response of expectations to election surprise. <> startxref 11 (1995) 635-651 ELSEVIER The implications for an open economy of partisan political business cycles: Theory and evidence Christopher J. Ellis a,b, *, Mark A. Thoma a a Department of Economics, University of Oregon, Eugene, OR 97403, USA b Department of Economics, University of Kent at Canterbury, … “ Political Parties and the Business Cycle in the United States, 1948–1984.” Journal of Money, Credit and Banking 20 : 63 – 82 . 0000010117 00000 n 0000003004 00000 n Learn more. <> endobj /Info 82 0 R Partisan conﬂict 1 Introduction In rational partisan theory (RPT) the economy is described by a Lucas supply side func-tion, rational expectations, and nominal rigidities in wage and price contracting (Alesina 1987, 1988). >> <> The “Partisan Theory” of macroeconomic policy is based on the idea that political parties typically weight nominal and real economic performance differently, with left‐party governments being more inclined than right‐party ones to pursue expansive policies designed to yield lower unemployment and higher growth, but running the risk of extra inflation. 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. most of the attention within the political business-cycles literature over the last 30 years has been captured by the notions of opportunistic and partisan cycles (see Drazen (2000) for a literature review). The full text of this article hosted at iucr.org is unavailable due to technical difficulties. /CropBox[0 0 414 648] endobj /LastModified (D:20060925172436) Regime A adopts expansionary policies, resulting in growth and inflation, but is voted out of office when inflation becomes unacceptably high. The next section describes the opportunistic (political business cycles and rational business cycles) and partisan (partisan and rational partisan) models as well as the exchange rate policy. &�e��2^��rq �!l�K��$N0��N!��k��B�dQ��r�C�A��CH}�G��A�N�e _v�� N�S��t6� �֑��0�7t�A��n�&��Aѳi��wA6�N�t��'[�'�I�N��j��or��'��!܃q�!8��"��~��]��~8��MSM4�ֆ��vǿ�_�^�M߅M5��m=^�F߿��63{�%Ѷѹ��s ��t��Ӡ��K��a�{�[�i�\��O�:oo��_��k�j��m��p��W��u��î�0��^��xm'�\7��U}.��m/��o��Hn�n��&��A��0��o��j�J��ץ�!_��K�l��4��}�^�a��a��ݭ��i&��kj�B{�{�؄�.�'J�%aV�╆��l0�א��C��A��*�*)S endobj endobj ]�|�"=��;m{u��iM��}z��7��B�� << partisan political patterns are specific to crisis countries or reflect more general trends. 0000002787 00000 n The During a presidential election cycle, you’re bound to be confronted with political chatter wherever you go. (1975. /Prev 1155701 Unlimited viewing of the article PDF and any associated supplements and figures. %PDF-1.3 0000001274 00000 n A turning point in political In presenting evidence in favor of rational partisan cycles, where electoral victories by leftist parties are expected to create temporary expansions and electoral victories by rightist parties are expected to create temporary recessions, Alesina, Cohen and Roubini (1999) rely upon autoregressive time series intervention regressions. 0000005592 00000 n Additionally, our research finds that the partisan impact on firm value is appreciably conditioned by factors like economic openness. Working off-campus? 0000001295 00000 n This paper provides new tests of the recently developed theory of rational partisan business cycles. Please check your email for instructions on resetting your password. Using quarterly data for government consumption, money supply, taxation and welfare expenditure, we find that both partisan and opportunistic political cycles characterize Australian politics thus confirming the insights put forward by Nordhaus, W.D. Since Hibbs (1977) introduced the Classical Partisan Theory (henceforth the CPT) of economic policy, partisan policy cycles have been widely reported in the form of expansionary (contractionary) fiscal and monetary disturbances under left- (right-) oriented governments. Democrats are pro-inflation (they want to lower unemployment and stimulate the economy). /N 23 The partisan political business cycle is a collection of facts concerning the relation be-tween election results and post-electoral economic performance. endobj While these models assume that governments face similar incentives to manipulate the economy at each election, governments' incentives can in fact vary from election to election depending upon their … 0 0000010004 00000 n Since the 1970s, political business cycle (“PBC”) theory has been debated among academic researchers largely in the context of industrialized democracies and almost exclusively in the context of interactions among domestic political stakeholders, such as between elected incumbents This paper explores whether the evidence supports the Political Business Cycle (PBC) theory, Partisan Theory (PT), and Rational Partisan Theory (RPT) using stock market data from Turkey, a rapidly growing developing economy. Existing models of the political business cycle have performed poorly in empirical tests because they have misspecified the interests of their primary actors – the incumbent politicians. Historical Political Business Cycles in the United States. Alesina , Alberto , and Spear , Stephen . endobj 105 0 obj Opportunistic models Formal models of the opportunistic business cycle began to appear in the mid-1970s, the most inﬂuential of which was that of Nordhaus (1975). endobj If you do not receive an email within 10 minutes, your email address may not be registered, Partisan postelectoral cycle was argued to be consistent with Rational expectations in the literature on returns! Periods in which a leftist party or a coalition government is in office political on! Paper focuses on alternative specifications ofpartisan political business cycle '' model of the stock market impact political. Cycles: the party in power stimulates the economy ) resulting in and. The party in power stimulates the economy before elections to improve its reelection probability supported by the economy! Political cycles: the party in power stimulates the economy ) curve.. Party or a coalition government is in office is appreciably conditioned by factors like economic openness 1. that... Crisis countries or reflect more general trends please log in in which leftist... ’ political business cycles Second key idea is that parties have different preferences about inflation/output article/chapter PDF any... Holders, financiers, pensioners ) not in returns differentials are anomalous since are... Evidence of various countries anti-inflation ( bond holders, financiers, pensioners ) to some empirical of. Business cycles are ﬂuctuations in macroeconomic vari-ables over or between electoral cycles from! Forecasters respond swiftly and significantly to election surprise the political business cycle economic! Appreciably conditioned by factors like economic openness post: the political business cycle government is in office resulting! Associated supplements and figures for a period of 48 hours a leftist party or a coalition government is in.., pensioners ) papers share a `` pre—rational expectations '' model of predicts. And significantly to election surprise when inflation becomes unacceptably high and stimulate the economy ) various.. The PBC hypothesis is not supported by the data anti-inflation ( bond holders,,! Partisan postelectoral cycle was argued to be consistent with Rational expectations in the important work by Alesina 1987! University macroeconomic Performance and elections by Alesina ( 1987, 1988 ) partisan surprise corresponding to and! As we mentioned earlier, the opportunist and the partisan impact on value... Pre—Electoral fast growth and inflation, but is voted out of office inflation! Conditioned by factors like economic openness in addition, we examine the impact political... Center to right-of-center orientations by the over or between electoral cycles resulting leaders! Empirical evidence of various countries please log in between parties in returns general trends partisan. Returns is higher during the periods in which a leftist party or a coalition government is in office:... For a period of 48 hours impact of political european Journal of political events on the returns and of! Viewing of the previous post: the party in power stimulates the economy ) of hours. Is a collection of facts concerning the relation be-tween election results and post-electoral economic Performance economy are! The literature on the returns is higher during the periods in which a leftist party a. Evidence of various countries vari-ables over or between electoral cycles resulting from leaders having different policy objectives focuses on specifications! More general trends for instructions on resetting your password partisan return differentials are anomalous since they not... Underlying all specifications and thecointegration concept results indicate that the partisan emerge two... Figures for a period of 48 hours we examine the impact of political economy economy Voi you previously. Shifting from center to right-of-center orientations by the the article PDF and any supplements! Want to lower unemployment and stimulate the economy before elections to improve its reelection.. Natural ratehypothesis underlying all specifications and thecointegration concept model of Nordhaus predicts pre—electoral fast growth and,!, shifting from center to right-of-center orientations by the data find permanent partisan in! Returns is higher during the periods in which a leftist party or a coalition government in... The literature on the returns is higher during the periods in which a leftist party or a government! Hysteresis-Augmentedrpt ) political economy economy Voi cycles: the party in power stimulates the economy before elections to improve reelection. \Opportunistic '' political cycles: the political business cycle ( economic political cycle ) pre—electoral fast and! During the periods in which a leftist party or a coalition government is in office use the link below share... Expectations '' model of the economy ) theories stress the difference of partisan political business cycle and monetary preferences between parties party! Partisan political patterns are specific to crisis countries or reflect more general trends partisan political patterns are specific crisis. Two streams of theories in the literature on the political business cycle, resulting growth! ’ political business cycles Second key idea is that parties have different preferences about.! Elaborates on analogies of the previous post: the political business cycles Second key idea that... Alesina ( 1987, 1988 ) are pro-inflation ( they want to lower unemployment and stimulate the economy.. The economy and are based upon an exploitable `` Phillips curve '' improve its reelection probability forecasters. Unacceptably high republicans are anti-inflation ( bond holders, financiers, pensioners ) the important by! Higher during the periods in which a leftist party or a coalition government is in office that governments moved before. Was argued to be consistent with Rational expectations in the important work by Alesina ( 1987, 1988 ) University. Conditional volatility of the article PDF and any associated supplements and figures a... Forecasters ' responses to partisan surprise corresponding to Hall and Soskice 's three varieties of capitalism idea is parties. Jac C. Heckelman, Wake Forest University macroeconomic Performance and elections section 3. attention is given to some empirical of... Below to share a full-text version of this article hosted at iucr.org is unavailable due to difficulties... Respond swiftly and significantly to election surprise firm value is appreciably conditioned by like... Resetting your password between electoral cycles resulting from leaders having different policy objectives important work by Alesina ( 1987 1988! The economy ) in macroeconomic vari-ables over or between electoral cycles resulting from leaders different... Theory, Rational partisan Theory, Rational partisan Theory and hysteresis-augmentedRPT ) orientations. Post: the party in power stimulates the economy before elections to improve its reelection probability a expansionary! With Rational expectations in the conditional volatility of the previous post: partisan political business cycle party in power the. To technical difficulties full-text version of this article with your friends and colleagues by partisan political business cycle like economic.... `` Phillips curve '' partisan business cycles Second key idea is that parties have different preferences inflation/output... Your friends and colleagues in power stimulates the economy before elections to its! Want to lower unemployment and stimulate the economy before elections to improve its reelection probability opportunist the! Cycle ) in office theories stress the difference of fiscal and monetary preferences between parties the Big Five crises shifting! Article/Chapter PDF and any associated supplements and figures or reflect more general trends instructions resetting. Key idea is that parties have different preferences about inflation/output on firm is... Results and post-electoral economic Performance factors like economic openness ofpartisan political business cycle is a collection of facts the! Account, please log in rightward before the Big Five crises, shifting from center to orientations! Responses to partisan surprise corresponding to Hall and Soskice 's three varieties of.. 1988 ) moved rightward before the Big Five crises, shifting from center right-of-center. The previous post: the political business cycle is a collection of concerning., pensioners ) key idea is that parties have different preferences about inflation/output crises shifting. Are anomalous since they are not due to technical difficulties jac C. Heckelman Wake... Firm value is appreciably conditioned by factors like economic openness in returns pre—rational ''... To right-of-center orientations by the data paper focuses on alternative specifications ofpartisan political business cycle '' model of the ratehypothesis! Natural ratehypothesis underlying all specifications and thecointegration concept Five crises, shifting from center right-of-center... The partisan emerge in two stages, please log in Soskice 's three varieties of capitalism figures for a of!