A Baseline Model of Behavioral Political Cycles and Macroeconomic Fluctuations

Corrado Di Guilmi, Giorgos Galanis and Christian R. Proaño
Authors registered in the RePEc Author Service: Christian R. Proaño

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Although the rational choice approach remains the theoretical modeling paradigm in economics and political sciences, the relevance of behavioral factors such as heuristics and biases has been increasingly acknowledged in both fields over the last decades. Against this background, and in honor the lifetime work of Peter Flaschel, we set up a baseline political-macroeconomic model of the Keynes-Metzler-Goodwin (KMG) variety enhanced with endogenous political choices as in Di Guilmi and Galanis (2021). The mutual feedback between the political and the macroeconomic spheres, generated by our framework, gives rise to cyclical dynamics around moving long-term trends for certain parameter constellations. The results of both the stability analysis and the simulations illustrate the existence of multiple political equilibria in the presence of endogenous electoral presences resulting from the crucial role of income distribution not only as a determinant of aggregate investment and aggregate output, but also, of the political climate.

Keywords: Behavioral Macroeconomics; Disequilibrium; Discrete Choices; Macroeconomic Fluctuations; Political Cycles; Polarization (search for similar items in EconPapers)
JEL-codes: D5 E3 H2 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2022-11
New Economics Papers: this item is included in nep-pke and nep-pol
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Related works:
Journal Article: A Baseline Model of Behavioral Political Cycles and Macroeconomic Fluctuations (2023)
Working Paper: A Baseline Model of Behavioral Political Cycles and Macroeconomic Fluctuations (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2022-71

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