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Working Paper
Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections
Political economists interested in discerning the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections. We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during election day. Analyzing high frequency financial fluctuations on November 2 and 3 in 2004, we find that markets anticipated higher equity prices, interest rates, and oil prices and a stronger dollar under a Bush presidency than under Kerry. A similar ...