TESTING THE SATISFICING VERSION OF THE POLITICAL BUSINESS-CYCLE 1905-1984

This paper develops a test of the satisficing version of the political business cycle. Previous tests have focused on maximizing models of political behavior and are not sufficiently general to test for satisficing behavior. Using annual U.S. data for the period 1905 to 1984, we find evidence supporting the satisficing version of the political business cycle model, but we reject the maximizing version. In accordance with the satisficing hypothesis, we find that increasing inflation or unemployment and decreasing monetary base growth in the third year of a presidential term are followed typically by reversals during the election year.