Hyperbolic Memory Discounting and the Political Business Cycle

T. Scott Findley (tscott.findley@usu.edu)

No 5556, CESifo Working Paper Series from CESifo

Abstract: The vintage political business cycle framework of Nordhaus (1975) represents the idea that the macroeconomic business cycle is manipulated opportunistically by an incumbent government to achieve re-election. A key assumption in this prototypical framework is that voters discount their memories about unemployment and inflation at a constant rate. Yet starting with Ebbinghaus (1885) and Jost (1897), a large body of research in psychology documents an empirical regularity that has come to be known as Jost’s Second Law of Forgetting - individuals discount recent memories at a higher rate compared to the rate at which they discount older memories. I find that incorporating this insight from psychology (i.e., hyperbolic memory discounting) into the benchmark framework moderates the amplitude of the predicted political business cycle.

Keywords: hyperbolic memory discounting; Jost's Second Law of Forgetting; political business cycle; inflation; unemployment (search for similar items in EconPapers)
JEL-codes: D03 D72 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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