PERCEPTIONS OF MACROECONOMIC PERFORMANCE, GOVERNMENT SUPPORT AND CONSERVATIVE PARTY STRATEGY IN BRITAIN 1983-1987

Abstract. This paper examines the relationship between macroeconomic performance and party popularity for the Conservative government of Margaret Thatcher in Britain from 1983 to 1987. A popularity function is estimated which shows that government support was significantly influenced by inflation and unemployment; perceptions and expectations of economic performance; and a variety of non‐economic variables and political shocks. A monetary policy reaction function is also estimated which shows that the Conservative government manipulated the money supply in order to stimulate the economy in the election year. Finally, an outcome function is estimated showing that monetary policy had a significant influence on inflation and unemployment. The results demonstrate that the Conservatives pursued a strategy of manipulating the economy for political profit, in a way consistent with the political business cycle. Copyright © 1990, Wiley Blackwell. All rights reserved