Authors
Rangan Gupta, Christian Pierdzioch, Aviral K Tiwari
Publication date
2024/6
Source
University of Pretoria, Department of Economics Working Papers
Issue
202427
Description
We use random forests, a machine-learning technique, to formally examine the link between real gasoline prices and presidential approval ratings of the United States (US). Random forests make it possible to study this link in a completely datadriven way, such that nonlinearities in the data can easily be detected and a large number of control variables, in line with the extant literature, can be considered. Our empirical findings show that the link between real gasoline prices and the presidential approval ratings is indeed nonlinear, and that the former even has predictive value in an out-of-sample exercise for the latter. We argue that our findings are in line with the so-called pocketbook mechanism, which stipulates that the presidential approval ratings depend on gasoline prices because the latter have sizable impact on personal economic situations of voters. JEL Classifications: C22; C53; Q40; Q43