Money, politics and the post-war business cycle

The political economy literature has enshrined as stylized fact the view th at lower inflation and temporarily lower growth follow the election of Repu blican presidents and has emphasized political manipulation of monetary pol icy as an explanation. Support for the monetary explanation comes in econom etric work that largely ignores identification issues that dominate the lit erature on measuring the effects of monetary policy. We generalize a standa rd vector autoregression framework to accommodate discrete, political party variables. We find almost no support for the view that political effects o n the macroeconomy operate through monetary policy and only weak evidence t hat political effects are significant at all. (C) 1999 Elsevier Science B.V . All rights reserved. JEL classification. E30; E52.