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

42 Pages Posted: 25 Jun 2004 Last revised: 26 Oct 2022

See all articles by Alberto F. Alesina

Alberto F. Alesina

Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Jeffrey D. Sachs

Columbia University - Columbia Earth Institute; National Bureau of Economic Research (NBER)

Date Written: June 1986

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.

Suggested Citation

Alesina, Alberto F. and Sachs, Jeffrey D., Political Parties and the Business Cycle in the United States, 1948-1984 (June 1986). NBER Working Paper No. w1940, Available at SSRN: https://ssrn.com/abstract=242125

Alberto F. Alesina (Contact Author)

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