, Volume 129, Issue 3-4, pp 249-262
Date: 02 Nov 2006

Does the Fed Contribute to a Political Business Cycle?

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Abstract

In contrast to findings of other studies, evidence is presented to support the existence of a Federal Reserve-induced political monetary cycle that corresponds to the U.S. presidential election cycle. Using various Taylor rules, we find support for the view that Fed policy turns significantly more expansionary in the seven quarters prior to the election, but only when the Fed chair and incumbent presidential party have partisan affiliations.

The authors thank James Butkiewicz, William Latham, Kenneth Lewis and an anonymous referee of this journal for helpful comments.