Unanticipated Money and the Political Business Cycle.

The article discusses the consistency of the Federal Reserve policy with the political business cycle thesis. Simulations of policies were conducted by means of sequential regressions that permit public anticipation for money growth based on information available at the same time such expectations are formed. The reaction function parameters may change over time. The political business cycle is tested by examining the series of forecast errors these simulations produce and analyzing their relationship to electoral timing considerations. This reaction function approach is difficult because the policy maker's behavior is not always predictable.