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Macroeconomic Policy and Public Choice
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The subject is the intersection between politics and macroeconomics. The political economic equilibrium links theories of macroeconomics and public choice. The four-year election cycle implies that this equilibrium may be a cycle rather than a point. An extension of standard Keynesian theory provides a model of endogenous stabilization in which the president practices short-run stabilization policy to dampen the impact of exogenous shocks. This is a situation in which discretion can be better than a policy rule even with rational agents, and in which rational voters support discretionary polic...
The subject is the intersection between politics and macroeconomics. The political economic equilibrium links theories of macroeconomics and public choice. The four-year election cycle implies that this equilibrium may be a cycle rather than a point. An extension of standard Keynesian theory provides a model of endogenous stabilization in which the president practices short-run stabilization policy to dampen the impact of exogenous shocks. This is a situation in which discretion can be better than a policy rule even with rational agents, and in which rational voters support discretionary policy. Special attention is given to the relevant data and the possibility of hypothesis testing.