Political Business Cycles

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Political actors play a pivotal role in the fluctuations in economic activities in any nation. The term is used to illustrate the stimulation of the economy just close to an election with the intention of enhancing prospects of the necessary leadership getting a chance of retaining their position after the election. The empirical evidence of political business cycles is always equivocal despite all the efforts that are put in place to try and establish its very existence. The extensive monetary and fiscal plans have been politically significant effects in the short run, comprising of the lower levels of unemployment, economic development, as well as the benefits from the expenditure of the government on a series of public services (Galí, 2015). …show more content…
To begin with, it is commonly agreed by economists that there exists a short-term tradeoff between the rate of use and employment in the economy versus the inflation levels. Secondly, it is thought that the leaders are reasonable actors who are giving a lot of priority on their selfish political goals over the economic needs of the people in the nation. For instance, the period towards the polls, they will go for inflation for reduced unemployment rates in the country (Drazen, 2000). Thirdly, individuals, who learn about the political business cycle most of the time believe that there is one excellent policy solution in any situation that is in the general interest of the people. The answer that results in a balance between the inflation levels and the rates of joblessness in the nation, commonly, the understanding of a balance is most of the time counter …show more content…
Thus, an autonomous central bank unit is bound to get engaged in electorally based policies as compared to financial organizations that are under the management of the ruling body. The regulatory impacts of such organizational structures are appreciated in the economic theory, but most of the empirical studies on the political business cycles fail to adequately regulate them. (Bertay and Huizinga, 2015) claimed that current reviews of various models of political business cycles might be damaged severely because they do not take into account the organizational difference that tends to bar the activities of the federal policymakers (Galí, 2015). None the less, the economic results such as the economic growth and the lower levels of employment have been extensively studied by the researchers. A connection to the central banks cannot be determined as other external factors might offset or back up the effects of the financial and fiscal policies. Most of the studies try to cover the gap by paying close attention to the policy results for which the central bank can be held accountable, comprising of the short duration interest rates (Bertay and Huizinga, 2015). The outcome is fundamental and very robust: with the
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