Working Paper: CEPR ID: DP5591
Authors: Erik Snowberg; Justin Wolfers; Eric Zitzewitz
Abstract: Political economists interested in discerning the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections. We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during election day. Analyzing high frequency financial fluctuations on November 2 and 3 in 2004, we find that markets anticipated higher equity prices, interest rates and oil prices and a stronger dollar under a Bush presidency than under Kerry. A similar Republican-Democrat differential was also observed for the 2000 Bush-Gore contest. Prediction market based analyses of all Presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican President raises equity valuations by 2-3 percent, and that since Reagan, Republican Presidents have tended to raise bond yields.
Keywords: elections; event study; partisan effects; political economy
JEL Codes: D72; E3; E6; G13; G14; H6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Anticipation of a Bush presidency (D84) | Increase in equity valuations (G19) |
| Probability of Bush winning (D79) | S&P 500 index (G12) |
| Bush presidency (H12) | Bond yields (G12) |
| Bush presidency (H12) | Oil prices (L71) |