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The Political Manipulation of Macroeconomic Policy

Published online by Cambridge University Press:  01 August 2014

John T. Williams
John T. Williams*
Affiliation:
Indiana University
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Abstract

Conventional wisdom and some research indicate that macroeconomic policies follow cycles corresponding to political, as well as economic, forces. Using vector autoregression analysis, I test three models of monetary policy determination for the United States, 1953–1984: the electoral cycle model (that reelection motivations on the part of presidents create a policy cycle), the party differences model (that policy changes reflect revolving presidential party administrations), and the referendum model (that changes in presidential approval create, in effect, a continuing referendum, allowing presidents to monitor their success and change macroeconomic policies when necessary). Analysis shows that monetary policies, as measured by the monetary base and short-term interest rates, respond to the election cycle and presidential approval (although the effect on macroeconomic outcomes is ambiguous). Party differences are found in real income but are not very significant in other variables.

Type
Articles
Information
American Political Science Review , Volume 84 , Issue 3 , September 1990 , pp. 767 - 795
Copyright
Copyright © American Political Science Association 1990

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