***The model's initial forecast calls for President Obama to win a second term. This prediction is based on the assumption that the economic conditions in most of the fifty states in the US will continue to recover at slow to moderate speeds.***

WITH Mitt Romney virtually certain to be the Republican nominee, the contest between him and President Obama in the US presidential election next November appears likely to be hard-fought and close.

The US presidential

election is based on a system called "short ballot" where an Electoral College elects the president and vice-president. The Electoral College consists of electors appointed by each of the fifty states. Since 1964, there have been 538 electors in each presidential election. Most of the fifty states use a winner-take-all system, in which the presidential candidate with the most popular votes in that state receives all of the state's electoral votes. A candidate must receive an absolute majority of electoral votes (currendy 270) to win the presidency.

In 2008,1 was involved in developing a model of the economic and political factors influencing American presidential elections that can be used to forecast the outcome. The 2008 version of the model proved accurate, predicting not only the election results that year but also the number of electoral votes received by the winner, Barack Obama. This year we are in the process of updating and modifying the election model to take into account the recent recession, the deepest seen in many decades.

This model does not use polls or prediction markets to directly gauge what voters are thinking. Instead, it forecasts the results of the Electoral College based on past elections, economic indicators, measures of state ideology, presidential approval ratings, incumbency, and a few other politically agnostic factors.

Campaigns and candidates evolve, and elections are dynamic events with more variables than can reasonably be distilled in a model. But assuming the economy takes its most likely course between now and November, the model's initial forecast calls for President Obama to win a second term. This prediction is based on the assumption that the economic conditions in most of the fifty states in the US will continue to recover at slow to moderate speeds.

The president's re-election is not assured, however. Three swing states — Florida, Ohio and Virginia -- turn out to be the key for the next election. In each of these three states, each party's chance of winning is nearly 50%. If all three states go Republican, it would only take

one additional state's electoral votes to give the White House to Mitt Romney.

Our election model is built on a forecasting tool first developed in 1978 by Ray Fair, an economist at Yale University. The underlying assumption is that US voters are influenced by changes in economic conditions in the months leading up to an election. While Fair's model uses national economic data to predict the outcome, this model connects economic conditions with voting results at the state level, where the all-important Electoral College vote is decided.

The model's dependent variable is the share of the vote received by the incumbent party in each state. Independent variables used to predict that share fall into two categories: (i) changes in economic conditions before the election, including the unemployment rate, real personal income, real GDP, and inflation; (ii) the two parties' share of the popular vote in

previous recent elections and the presidential approval rating. These can capture some of the non-economic factors affecting election results, such as states' general political leanings and the president's job performance.

Using historical economic and election data back to 1992, the 2012 model has correctly predicted the outcome of the last five presidential contests. Since the 2012 election follows an extraordinary period in US economic history, the model has been updated to reflect the Great Recession and the unusually slow recovery. In addition to the direction and pace of economic change -- measured by the unemployment rate and GDP — the model now also weighs the depth of the recent slump and its lingering impact on the national mood -- what we term as the "grumpy voter" effect.

Thus, even if economic conditions are improving, they remain bad in many states in the US; this could cause voters to discount

recent gains and remain in a mood to throw out the incumbent party. This effect reduces Obama's margin in the 2012 forecast. Even after incorporating this effect, the model projects the president will win re-election. While a few swing states are projected to fall into the Republican column, the model predicts Obama will receive 298 Electoral College votes, 28 above the 270 needed to win.

The model's prediction nonetheless is tied to the economy's performance. If GDP and employment grow somewhat less than forecast, the election could be much closer than the model projects. Specifically, a new economic downturn or recession could cause the results to switch in Florida, Ohio or Virginia, where Obama's projected majority is less than 2 percentage point.

If Obama loses these three states, his projected Electoral College total drops to 272, only two more than needed to regain the White House. It would take only one more state for the Republican nominee Mitt Romney to move to the White House.

On the other hand, the model suggests that an Obama win in any of these three key swing states will likely nail down a second term for him. The Democrats could win even if they lose two of the three key states and up to two smaller states — as long as three other large swing states — Michigan, Wisconsin and Pennsylvania — remain in their column. The model indicates that all three are likely to go Democratic this year.

For the Republicans, by contrast, the model predicts an uphill batde this year. Even if Mitt Romney wins two out of three in Florida, Ohio and Virginia, he will still need to capture at least three smaller states now projected to go Democratic to win the presidency.

Any model is, of course, subject to margins of error. Also, it does not incorporate the impact of global geopolitical events such as wars or natural disasters, or of the personal leadership qualities of presidential candidates or their running mates.

Various polls have shown that the economy, by far, remains the number one issue in this election. Despite a number of downside risks, however, the US economic recovery has broadened considerably over the last few months. If this trend continues, Obama's chances of getting reelected will brighten. Obama does have one big advantage: His supporters right now are far more enthusiastic about him. They are more energised than those backing Romney.

The writer is a Professor and Chair, Department of Economics, Marquette University.

Email:abdur.chowdhury@marquette.edu