Opinion polls and political business cycles: Theory and evidence for the United States

Abstract

The paper shows that the “Frey–Schneider–Schultz hypothesis” – that there is a negative relation between the government's popularity and the government's incentives to engineer political business cycles – is consistent with rational, forward-looking voting provided one makes appropriate assumptions about the incumbent's preferences. The empirical part of the paper presents evidence favourable to the hypothesis using quarterly data on US money growth.