A questionnaire survey was conducted to explore how people think about inflation, and what real problems they see it as causing. With results from 677 people, comparisons were made among people in the U.S., Germany, and Brazil, between young and old, and between economists and non-economists. Among noneconomists in all countries, the largest concern with inflation appears to be that it lowers people's standard of living. Non-economists appear often to believe in a sort of sticky-wage model, by which wages do not respond to inflationary shocks, shocks which are themselves perceived as caused by certain people or institutions acting badly. This standard of living effect is not the only perceived cost of inflation among non-economists: other perceived costs are tied up with issues of exploitation, political instability, loss of morale, and damage to national prestige. The most striking differences between groups studied were between economists and non-economists. There were al...

This article updates through the 1992 election the equatiun originally presented in

: Research on the political business cycle since the mid-1970s is surveyed and assessed. We argue that models based on monetary surprises as the driving force are unconvincing explanations of either opportunistic or partisan cycles. Research should concentrate on fiscal policy as the driving force, with monetary effects being the result of accommodation of fiscal impulses. We present a model political business cycle model that combines active fiscal policy and passive monetary policy (which we term the AFPM model), which addresses a number of objections to earlier models. I wish to thank my discussants, Alberto Alesina, Carl Walsh, conference participants and seminar participants at the Hebrew University of Jerusalem and the Bank of Israel for helpful comments, and Stefan Hubrich for extraordinarily able research assistance and many very useful discussions. This research was supported in part by the Maurice Falk Institute for Economic Research, Hebrew University of Jerusalem. Early w...

to stimulate discussion and critical comment. References to International Finance Discussion Papers (other than an acknowledgment that the writer has had access While macroeconometricians continue to dispute the size, timing, and even the existence of e ects of monetary policy, political economists often nd large e ects of political variables and often attribute the e ects tomanipulation of the Fed. Since the political econometricians often use smaller information sets and less elaborate approaches to identi cation than do macroeconometricians, their striking results could be the result of simultaneity and omitted variable biases. Alternatively, political whims may provide the instrument for exogenous policy changes that has been the Grail of the policy identi cation literature. In this paper, we layout and apply a framework for distinguishing these possibilities. We nd almost no support for the hypothesis that political e ects on the macroeconomy operate through monetary policy and only weak evidence that political e ects are signi cant atall. Money, politics and the post-War business cycle

Analyses of the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections. We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during Election Day. Analyzing high frequency financial fluctuations following the release of flawed exit poll data on Election Day 2004, and then during the vote count, we find that markets anticipated higher equity prices, interest rates and oil prices and a stronger dollar under a Bush presidency than under Kerry. A similar Republican-Democrat differential was also observed for the 2000 Bush-Gore contest. Prediction market based analyses of all Presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican President raises equity valuations by 2-3 percent, and that since Reagan, Republican Presidents have tended to raise bond yields.

The excess return in the stock market is higher under Democratic than Republican presidencies: 9 percent for the value-weighted and 16 percent for the equal-weighted portfolio.The difference comes from higher real stock returns and lower real interest rates, is statistically significant, and is robust in subsamples.The difference in returns is not explained by business-cycle variables related to expected returns, and is not concentrated around election dates. There is no difference in the riskiness of the stock market across presidencies that could justify a risk premium. The difference in returns through the political cycle is therefore a puzzle.

Governments use national debt and the budget deficit as measures of fiscal position. But what should government policy aim to achieve with respect to these measures? Are these the right summary measures at which to be looking? This paper considers what the government should use as its fiscal targets to achieve policies that are consistent with long-term fiscal objectives. Among its findings are: 1. Setting long-term targets for fiscal policy should start with a specification of fundamental policy objectives. There are at least three important long-term objectives associated with concerns about debt and deficits: intergenerational equity, economic performance, and fiscal sustainability. These objectives may conflict and their relative importance depends on both social judgments and the economic environment. 2. If governments have incentives not to adhere to fiscal policy targets, then restrictions on fiscal policy actions may be desirable, even though such restrictions reduce the scope for varying policy in response to changes in economic conditions. An independent entity such as fiscal policy council can serve as an alternative mechanism for ensuring compliance, although a certification of non-compliance, alone, may not impose a sufficient penalty. 3. A collection of forward-looking measures, presented in conjunction with an assessment of their dependence on particular assumptions, can provide far more information than short-term deficit targets alone, although care must be taken with respect to the method of presentation to ensure that the multiplicity of measures does not hinder the ability to provide a clear message regarding the desirability of particular fiscal policy paths

In the linear model with unknown variances, one can often model the heteroscedasticity as var(y i ) = oe 2 f(w i ; `); where f is a fixed function, w i are the "weights" for the problem and ` is an unknown parameter (f(w i ; `) = w \Gamma` i is a traditional choice). We show how to do a fully Bayesian computation in this simple linear setting and also for a hierarchical model. The full Bayesian computation has the advantage that we are able to average over our uncertainty in ` instead of using a point estimate. We carry out the computations for a problem involving forecasting U.S. Presidential elections, looking at different choices for f and the effects on both estimation and prediction. 1 Introduction In both the econometrics and statistics literature, a standard way to model heteroscedasticity in regression is through a parametric model for the unequal variances, as described in many places, e.g. Amemiya (1985), Greene (1990), Judge et al. (1985), Carroll & Ruppert (1988). M...

The dominantscientific methodology for short term forecasting in important elections uses trial-heat polls, in which a sample of respondents report their current electoral preferences.

The conventional wisdom regarding the political consequences of large reductions of budget de…cits is that they are very costly for the governments which implement them: they are punished by voters at the following elections. In the present paper, instead, we …nd no evidence that governments which quickly reduce budget de…cits are systematically voted out of o ¢ ce in a sample of 19 OECD countries from 1975 to 2008. We also take into consideration issues of reverse causality, namely the possibility that only "strong and popular " governments can implement …scal adjustments and thus they are not voted out of o ¢ ce "despite " having reduced the de…cits. In the end we conclude that many governments can reduce de…cits decisively avoiding an electoral defeat. 1