Articlegreen1987

Macroeconomic Policy in a Two-Party System as a Repeated Game

1,324 citations0/0 files storedThe Quarterly Journal of Economics

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Fiscal Policies and Political Economy Monetary Policy and Economic Impact Politics, Economics, and Education Policy

Abstract

This paper considers the interaction of two parties with different objectives concerning inflation and unemployment and rational and forward-looking wage-setters. If discretionary policies are followed, an economic cycle related to the political cycle results in equilibrium. This cycle is significantly different from the traditional “political business cycle.” Reputational mechanisms due to the repeated interaction of the two parties and the public or commitments to a common policy rule can improve upon the discretionary outcome by reducing or eliminating the magnitude of the economic fluctuations.

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References

1958An Economic Theory of Democracy.1985The Optimal Degree of Commitment to an Intermediate Monetary Target 1977Political Parties and Macroeconomic Policy 1980Aggregate Dynamics and Staggered Contracts 1977Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule 1975Other Solutions to Nash's Bargaining Problem 19903. Rules, Discretion, and Reputation in a Model of Monetary Policy 1988Political Parties and the Business Cycle in the United States, 1948-1984

Cited by

2007Voting for autocracy: hegemonic party survival and its demise in Mexico 2006Some Uses of Happiness Data in Economics 1988Credibility and Policy Convergence in a Two-party System with Rational Voters 2003The Case for Restricting Fiscal Policy Discretion 2003The Presidential Puzzle: Political Cycles and the Stock Market 2004Opportunistic Political Cycles: Test in a Young Democracy Setting 2009

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