Party Influence in Congress and the Economy
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 tracking 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.
The authors would like to thank Keith Krehbiel, Marc Meredith and Betsey Stevenson for useful comments, John Delaney of Tradesports for providing data, and Bryan Elliott for programming assistance. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
- The estimated effect of a change in the majority party in the Senate on the S&P 500 was only 0.17 percent, ...much smaller than the...
Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2007. "Party Influence in Congress and the Economy," International Quarterly Journal of Political Science, now publishers, vol. 2(3), pages 277-286, August. citation courtesy of