A Re-examination of German Government Approval and Economic Performance: Is There a Stable Relationship between Them?

Abstract

This paper studies the stability between the government approval and macroeconomic series for Germany during 1977–2004 allowing structural breaks. We first execute traditional cointegration tests without breaks, and the results reveal weak evidence of a link between the political and economic variables. However, using Hansen's (1992) tests for parameter instability suggest that such a relationship between politics and economy may be unstable. After allowing for the structural breaks in the series and conducting Gregory and Hansen's (1996) cointegration test, we find that a clear cointegrated relationship undoubtedly exists between approval rates and macroeconomics; we discover that some events indeed affect the government's popularity. Overall, once we locate structural breakpoints, such as when the West German government was succeeded by Helmut Kohl in 1982, then we begin to distinguish the actual cointegrated relationships between the approval rate of government and macroeconomics before and after the structural breakpoint.