Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 415: Electoral Cycles in Macroeconomic Forecasts

Davide Cipullo () and André Reslow ()
Additional contact information
Davide Cipullo: Universit`a Cattolica del Sacro Cuore, Postal: Largo A. Gemelli 1, 20123 Milan (Italy)
André Reslow: Payments Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: This paper documents the existence of electoral cycles in GDP growth forecasts released by governments. In a theoretical model of political selection, we show that governments release overly optimistic GDP growth forecasts ahead of elections to increase the reelection probability. The bias arises from lack of commitment if voters are rational and from manipulation of voters’ beliefs if they do not expect the incumbent to be biased. Using high-frequency forecaster-level data from the United States, the United Kingdom, and Sweden, we document that governments overestimate short-term real GDP growth by 0.1–0.3 percentage points.

Keywords: Electoral Cycles; Political Selection; Voting; Macroeconomic Forecasting

JEL-codes: D72; D82; E37; H68

Language: English

67 pages, August 1, 2022

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