Working Paper: NBER ID: w12073
Authors: Erik Snowberg; Justin Wolfers; Eric Zitzewitz
Abstract: Analyses of 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 following the release of flawed exit poll data on Election Day 2004, and then during the vote count, 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: No keywords provided
JEL Codes: D72; E3; G13; G14; H6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reelection of George W. Bush in 2004 (K16) | Increase in equity prices (G19) |
| Reelection of George W. Bush in 2004 (K16) | Increase in nominal interest rates (E43) |
| Reelection of George W. Bush in 2004 (K16) | Increase in real interest rates (E43) |
| Reelection of George W. Bush in 2004 (K16) | Increase in oil prices (Q31) |
| Reelection of George W. Bush in 2004 (K16) | Stronger dollar (F31) |
| Expectations of policy changes favoring equity holders (G38) | Increase in equity prices (G19) |
| Expectations of policy changes favoring equity holders (G38) | Increase in nominal interest rates (E43) |
| Expectations of higher demand due to economic expansion (J23) | Increase in oil prices (Q31) |