On the Existence of a Political Monetary Cycle

Abstract

This paper examines electoral influence on monetary policy as measured by Ml money growth. I find a significant four-year electoral cycle in money growth even when controlling for the influence of interest rates, income, and budget deficits. Further, the residual electoral cycle produces the income and inflation movements associated with the political business cycle when it is used in simulations of simple reduced form macro models. The paper concludes by discussing the difficulties in rationalizing cyclical monetary policy with rational expectations.

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