Modeling Government Popularity in Postwar Britain: A Methodological Example

Abstract

Economic theory suggests that government popularity may be related to the rate of change of (nonstationary) economic quantities and the level of (stationary) financial variables (like inflation or interest rates). Political theory suggests that this relationship may not be stable over time. We find that there is a well-defined relationship between U.K. government popularity in the postwar period and a small set of economic variables (i.e., unemployment, inflation, and real interest rates). Unusual political events are also important. Voters appear to discount history at a high rate. Remarkably, the estimated equation is very stable and passes a battery of stability tests, including postsample parameter stability tests. Furthermore, estimation using the Kalman filter shows no tendency for the parameters to vary systematically over time, implying that voter preferences have remained broadly constant throughout the postwar years.

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