Does the Fed Contribute to a Political Business Cycle?
- 216 Downloads
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.
Unable to display preview. Download preview PDF.
- Alesina, A., Roubini, N., & Cohen, G. (1997). Political Cycles and the Macroeconomy. Cambridge, MA: The MIT Press.Google Scholar
- Alt, J. E., & Chrystal, K. A. (1983). Political Economics (Berkley: University of California Press).Google Scholar
- Baum, C., Schaffer, M. & Stillman, S. (2005). IVREG2: Stata Module for Extended Instrumental Variables/2SLS and GMM Estimation, econpapers.repec.org/software/ bocbocode/S425401.htm.Google Scholar
- Beck, N. (1987). Elections and the Fed: Is there a political business cycle. American Journal of Political Science, 31(1), 194–216.Google Scholar
- BGFRS, (1994). The Federal Reserve System: Purposes and Functions, Eight ed., www.federalreserve.gov/pf/pdf/frspurp.pdf, (Washington, D.C.: Board of Governors of the Federal Reserve System).
- CBO, (2005). Quarterly Historical and Projected Estimates of Potential GDP and NAIRU Spreadsheet, August, http://www.cbo.gov/Spreadsheets.shtml, (Washington: Congressional Budget Office).
- Fair, R. C. (1978). The effect of economic events on votes for the president. The Review of Economics and Statistics, 60(2), . 159–173.Google Scholar
- Fair, R. C. (1996). Econometrics and presidential elections. The Journal of Economic Perspectives, 10(3), 89–102.Google Scholar
- FRBSL (2005). FRED II Database, http://research.stlouisfed.org/fred2/. St. Louis: Federal Reserve Bank of St. Louis.
- Grier, K. B. (2005). Presidential Elections and Real GDP Growth in the USA, 1961–2004, unpublished manuscript.Google Scholar
- Maisel, S. J. (1973). Managing the Dollar (New York: Norton).Google Scholar
- Orphanides, A. (2003). Historical monetary policy analysis and the taylor rule. Journal of Monetary Economics, 50, pp. 983–1022.Google Scholar
- StataCorp. (2005), STATA Statistical Software: Release 9.1, (College Station, TX: Stata Corporation).Google Scholar
- Stigler, G. J. General economic conditions and national elections. American Economic Review, 63(May), 160–167.Google Scholar
- Taylor, J. (1993). Discretion versus policy rules in practice. Carnegie Rochester Conference Series on Public Policy, 39, 195–214.Google Scholar