POLITICAL BUSINESS CYCLES AND MACROECONOMIC CREDIBILITY - A SURVEY

There is clear evidence that government popularity and election perfor mance is affected, in part, by economic performance, suggesting that g overnments may manipulate the economy to political advantage. Simple m odels incorporating adaptive expectations which allowed the government to exploit this relationship were developed in the 1970s, but fell ou t of fashion with the advent of new-classical economics. However, mode rn theories of the political business cycle, which are closely related to the macroeconomic policy game literature, assume rational expectat ions, and lead to forms of political business cycle, driven by the exi stence of uncertainty of one type or another. The international eviden ce suggests that some aspects of the theories apply, although definiti ve conclusions are - as we might expect - hard to come by.