This paper examines the interaction between two political parties with different objectives regarding inflation and unemployment, and rational wage setters. It argues that if discretionary policies are followed, an economic cycle related to the political cycle results in equilibrium. This cycle is distinct from the traditional "political business cycle." The paper suggests that reputational mechanisms, due to repeated interactions between the parties and the public, or commitments to a common policy rule, can improve upon the discretionary outcome by reducing or eliminating economic fluctuations. The model implies complete policy neutrality and an inflationary bias. The paper analyzes a similar game in a two-party system, where the parties have different preferences and incentives. It shows that if the parties are shortsighted, economic fluctuations connected with the political cycle result in equilibrium. However, these fluctuations can be avoided if the parties recognize the benefits of a cooperative common policy rule. The paper also discusses the sustainability of the efficient frontier and the best credible policies under different conditions. The results highlight the importance of reputational forces in reducing policy volatility and improving economic outcomes.This paper examines the interaction between two political parties with different objectives regarding inflation and unemployment, and rational wage setters. It argues that if discretionary policies are followed, an economic cycle related to the political cycle results in equilibrium. This cycle is distinct from the traditional "political business cycle." The paper suggests that reputational mechanisms, due to repeated interactions between the parties and the public, or commitments to a common policy rule, can improve upon the discretionary outcome by reducing or eliminating economic fluctuations. The model implies complete policy neutrality and an inflationary bias. The paper analyzes a similar game in a two-party system, where the parties have different preferences and incentives. It shows that if the parties are shortsighted, economic fluctuations connected with the political cycle result in equilibrium. However, these fluctuations can be avoided if the parties recognize the benefits of a cooperative common policy rule. The paper also discusses the sustainability of the efficient frontier and the best credible policies under different conditions. The results highlight the importance of reputational forces in reducing policy volatility and improving economic outcomes.