The Political Business Cycle after 25 Years

Research on the political business cycle since the mid-1970s is surveyed and assessed. We argue that models based on monetary surprises as the driving force are unconvincing explanations of either opportunistic or partisan cycles. Research should concentrate on fiscal policy as the driving force, with monetary effects being the result of accommodation of fiscal impulses. We present a model political business-cycle model (which we term the AFPM model) that combines active fiscal policy and passive monetary policy and that addresses a number of objections to earlier models.