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Party Influence in Congress and the Economy

By Erik Snowberg, Justin Wolfers and Eric Zitzewitz

Abstract

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 percent 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

Topics: Prediction markets, event studies, Congressional elections, political parties JEL codes, H00, G13, G14
Year: 2010
OAI identifier: oai:CiteSeerX.psu:10.1.1.180.2400
Provided by: CiteSeerX
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