A copy of this work was available on the public web and has been preserved in the Wayback Machine. The capture dates from 2011; you can also visit the original URL.
The file type is
Partisan Cycles and the Consumption Volatility Puzzle
Social Science Research Network
Standard real business cycle theory predicts consumption should be smoother than output, as observed in developed countries. In this paper we provide a novel explanation of the consumption volatility puzzle based on political frictions. We develop a dynamic stochastic political economy model where parties that disagree on the size of government (right-wing and left-wing) alternate in power and face aggregate uncertainty. While productivity shocks only affect consumption through responses todoi:10.2139/ssrn.1866431 fatcat:dqp32rca4zasfa3pmg3ia444ua