Political Parties and the Business Cycle in the United States, 1948-1984

Jeffrey Sachs and Alberto Alesina

Scholarly Articles from Harvard University Department of Economics

Abstract: This paper tests the existence and the extent of a politically induced business cycle in the U.S. in the post—World War II period. The cycle described in this paper is different from the traditional "political business cycle" of Nordhaus. It is based on a systematic difference between the monetary policies of the two parties in a model with labor contracts. From an explicit optimization problem we derive a system of equations for output and money growth. Then we successfully test the non-linear restriction imposed by the theory on the parameters of the system of equations. We cannot reject the hypothesis that money growth has been systematically different under the two types of administration and that this difference contributes to explain output fluctuations.

Date: 1988
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Published in Journal of Money, Credit and Banking

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Journal Article: Political Parties and the Business Cycle in the United States, 1948-1984 (1988)
Working Paper: Political Parties and the Business Cycle in the United States, 1948-1984 (1986)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:4553026

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