Wirtschaftswissenschaft

Anna Maffioletti, Michele Santoni

Ambiguity and Partisan Business Cycles

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Jahrgang 59 () / Heft 3, S. 387-406 (20)

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We introduce ambiguity (Knightian uncertainty) into a stripped-down version of Alesina's (1987) partisan model of the business cycle. We show that, if the private sector's subjective expectations of future events are ambiguous, there is the possibility of a political business cycle, even when the parties running for the election have similar preferences for inflation and unemployment. In particular, if inflation is perceived as a loss, then the larger the fraction of the population that is ambiguity-prone (-averse), the larger is the postelection boom (slump), with unemployment then returning back to its natural level. We also show that, for given parties' preferences, ambiguity proneness (aversion) implies smaller (larger) fluctuations in the unemployment around its natural level when the right-wing party wins the elections.
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Anna Maffioletti Keine aktuellen Daten verfügbar.

Michele Santoni Keine aktuellen Daten verfügbar.