Judging Inflation and Unemployment: The Origins of Retrospective Evaluations

In recent years, a great deal of evidence has been generated regarding the impact of retrospective evaluations of the economy on vote choice. Yet little attention has been focused on the actual process whereby such evaluations are formed. This paper employs panel data to test a model of retrospective evaluations of inflation and unemployment. Our findings suggest, first, that retrospective evaluations are influenced by personal economic circumstances and knowledge about national economic conditions. And second, our findings indicate that the lag times in the public's learning of economic trends differs significantly for inflation and unemployment, with the public reacting more quickly to changes in unemployment. The reasons for such findings and their political implications are discussed.