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Party influence in congress and the economy

Snowberg, Erik and Wolfers, Justin and Zitzewitz, Eric (2007) Party influence in congress and the economy. Quarterly Journal of Political Science, 2 (3). pp. 277-286. ISSN 1554-0626. doi:10.1561/100.00006060.

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To understand the extent to which partisan majorities in Congress influence economic policy, we compare financial market responses in recent midterm elections to Presidential elections. We use prediction markets that track election outcomes as a means of precisely timing and calibrating the arrival of news, allowing substantially more precise estimates than a traditional event study methodology. We find that equity values, oil prices, and Treasury yields are slightly higher with Republican majorities in Congress, and that a switch in the majority party in a chamber of Congress has an impact that is only 10%-30% of that of the Presidency. We also find evidence inconsistent with the popular view that divided government is better for equities, finding instead that equity valuations increase monotonically, albeit slightly, with the degree of Republican control.

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Additional Information:© 2007 E. Snowberg, J. Wolfers and E. Zitzewitz. MS submitted 1 December 2006; final version received 27 May 2007. The authors would like to thank Michael Herron, Keith Krehbiel, Ulrike Malmendier, Nolan McCarty, Marc Meredith, Betsey Stevenson, and seminar participants at Berkeley, the University of British Columbia, Brown, Columbia, the Federal Trade Commission, Georgetown, Massachusetts Institute of Technology, Princeton, Toronto, Vanderbilt Law School, the University of Washington, and Yahoo Research for their useful comments, John Delaney of InTrade for providing data, and Bryan Elliott for his programming assistance.
Subject Keywords:prediction markets; event studies; congressional elections; political parties
Issue or Number:3
Record Number:CaltechAUTHORS:SNOqjps07
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:13391
Deposited By: Tony Diaz
Deposited On:07 May 2009 18:56
Last Modified:08 Nov 2021 22:37

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