The powers that are: central bank independence in the Greenspan era

The powers that are: central bank independence in the Greenspan era This paper investigates political pressure from incumbent Presidents and Congress on US monetary policy during the period that Greenspan was the chairman of the Federal Reserve. We propose an expectations-augmented Taylor rule in which we replace realized values with expectations, and use the unemployment gap instead of the output gap. We apply a state-space framework that allows the use of mixed frequency data. Our findings suggest that the Federal Reserve under Greenspan did not create election driven cycles, but also did not strictly follow the Taylor rule. The deviations from the Taylor rule are not driven by partisan politics, but are rooted in the expected economic conditions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Empirical Economics Springer Journals

The powers that are: central bank independence in the Greenspan era

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Publisher
Springer Berlin Heidelberg
Copyright
Copyright © 2017 by The Author(s)
Subject
Economics; Econometrics; Statistics for Business/Economics/Mathematical Finance/Insurance; Economic Theory/Quantitative Economics/Mathematical Methods
ISSN
0377-7332
eISSN
1435-8921
D.O.I.
10.1007/s00181-016-1225-y
Publisher site
See Article on Publisher Site

Abstract

This paper investigates political pressure from incumbent Presidents and Congress on US monetary policy during the period that Greenspan was the chairman of the Federal Reserve. We propose an expectations-augmented Taylor rule in which we replace realized values with expectations, and use the unemployment gap instead of the output gap. We apply a state-space framework that allows the use of mixed frequency data. Our findings suggest that the Federal Reserve under Greenspan did not create election driven cycles, but also did not strictly follow the Taylor rule. The deviations from the Taylor rule are not driven by partisan politics, but are rooted in the expected economic conditions.

Journal

Empirical EconomicsSpringer Journals

Published: Jan 7, 2017

References

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