Why the Economy?

1. Why the Economy? Raymond Duch University of Houston Randy Stevenson Rice University

2. Cross-national Studies of Economic Voting

4. At the individual level, limited efforts to understand cross-national variation. • Lewis-Beck 1988 • Paldam 1991 • Nonetheless some interesting differences in model results cross-nationally

5. At the aggregate level, considerable cross-national variation in economic voting results. • “Clarity of responsibility” is one effort to help understand – but limited.

6. Research Puzzle • We suspect individual-level economic voting models vary significantly cross-nationally. • But current published modeling efforts are not rich enough to draw meaningful conclusions.

7. Our Insights • Economic evaluations are attitudes – information processing, cueing and cognitive psychology literature. • Measure extent to which economic information is “mediated”.

9. The Research Project

11. Mediated Economic Cues • Citizens employ cues/information short-cuts in forming economic assessments • Luppia & McCubbins argument • Nevertheless information gathering costs matter

12. Political actors, elites, media attempt to shape these cues or “packaging” of messages • Zaller on the strategic manipulation of media by political actors • Iyengar on framing

13. Distorted messages regarding economy? • Some evidence from analyses of different media • Negativity bias • Human interest bias

14. Distortions depend on: • Information gathering costs • Cross-national diversity of media • Institutional contexts

15. Implications for EV Models? • Economic evaluations are based on distorted information • Seriously questions the “democratic accountability” theory of EV

16. Null hypothesis • Economic perceptions and actual economic outcomes track each other in a regular fashion • The series are co-integrated and can be modeled as an ECM

17. Mediated cues argument • There is distortion in mass assessments of economic outcomes. • This distortion is a function of mediated messages regarding the economy (media, politicians, etc.)

18. Hypothesis • Distortion evidenced by poor ECM fit. • Mediation implies degree of distortion correlated with cost of information • High for unemployment • Low for inflation • Mediation implies asymmetric effects

19. Mediation also implies considerable cross-national variation in degrees of distortion • Mediation implies distortions in both mass and elite economic assessments

20. Data • Mass public’s economic assessments: • Monthly consumer confidence surveys conducted by the European Commission in all member countries 1986-2000 • Elite’s economic assessments • Monthly business confidence surveys from European Commission 1967-2000

21. Economic indicators • Quarterly GDP growth from OECD (Palmer and Whitten) CPI and unemployment figures from The Economist • All variables are transformed into standardized z scores

22. Modeling Economic Attitudes

27. The error correction model • DProInfit = ai-d[ ProInfit-1- t1INFit] +b1DINFit+1 + eit

28. d = t-test on d indicates significance of co-integration

29. t1 = • long term multiplier for the effect of a change in the real economy on economic expectations • Expectation is that t1= 1

30. Results

32. CPI and Price Expectations • d (ECM) parameter significant in all but one country (Italy) • The long term relationship between CPI and Price Expectations captured by t1 is significant and close to 1 as expected • Note the asymmetry -- t1 is larger when inflation increasing

34. Unemployment and Unemployment Expectations • d (ECM) parameter significant is not significant • Suggesting the two series are not co-integrated.

36. General Economy & GDP • d (ECM) parameter significant in all countries • The long term relationship between general economy and GDP captured by t1 is significant and close to 1 in vast majority of case • Asymmetry in t1 is less consistent but evident

37. Cross national variation • Note there is cross-national variation in • The magnitude of t1 • The incidence of asymmetry

38. Conclusions • Perceptions of the economy and the real economy are in many cases co-integrated and seem to fit an error correction process • There is evidence of distortion

39. There is also evidence that distortion results from mediated cues • Economic outcomes that are costly to monitor (unemployment) are perceived less well by the mass public than easily monitored outcomes (CPI) • Asymmetry in reactions to positive and negative economic news

40. Cross-national variation • Long-term equilibrium relationship between series • Asymmetry varies by nation • Suggests role of mediated economic information

41. The economy, economic attitudes and political preferences

42. What Drives Popularity Series? • Subjective assessments of the economy – which we think are shaped from mediated representations of the economy? • Or, the real economy?