When Investors Enjoy Less Policy Risk
Divided Government, Economic Policy Change, and Stock Market Volatility in Germany, 1970‐2005
Bibliographic Data
| ID | 6222838 |
|---|---|
| Authors | Michael M Bechtel (0000-0002-6080-5367, U.S. National Science Foundation, corresponding author), Roland Fã1⁄4, Roland Füss (0000-0002-0274-0809, Ministry of Economy and Finance, corresponding author), Roland Füss |
| Year | 2008 |
| Volume | 14 |
| Issue | 2 |
| Pages | 287-314 |
| Publication date | 2008-06-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Swiss Political Science Review (JOURNAL) |
| Journal identifiers | ISSN: 1424-7755 • E-ISSN: 1662-6370 |
| Publisher | Wiley (PUBLISHER • GB) |
| DOI | 10.1002/j.1662-6370.2008.tb00104.x |
| OpenAlex | W2139803950 |
| Language | EN |
| Citations received | 3 |
| References cited | 6 |
How does divided government affect the probability of economic policy change, and thus policy risk on financial markets? In contrast to the standard balancing model we argue that divided government, i.e., partisan conflict between the executive and the legislative branches, negatively affects the possibility of economic policy change. Using a simple spatial model we demonstrate that one should expect divided government to increase the probability of policy gridlock. Since divided government reduces the probability of economic policy change, financial markets can operate under lower policy risk in times of divided than in periods of unified government. For the empirical evaluation we exploit the fact that stock return volatility provides us with a measure of risk. If the gridlock argument does hold, stock return fluctuations should be lower under divided than under unified government. Our results confirm that divided government has a volatility reducing effect on the German stock market. This supports the view that divided government lowers policy risk
Divided government · Economic policy · Economics · Financial economics · Gridlock · Legislature · Monetary economics · Stock market · Credit Risk and Financial Regulations · Fiscal Policies and Political Economy · Monetary Policy and Economic Impact
| Unique citing works | 3 |
|---|---|
| Citations per year | 0.23 |
| Citation span | 2013 - 2024 (12) |
| Citation velocity | recent |
| Highly cited | No |
| Citation types | Neutral: 3 |