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Does the Fed Contribute to a Political Business Cycle?

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  • Burton Abrams

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  • Plamen Iossifov

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. Copyright Springer Science+Business Media, Inc. 2006

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File URL: http://hdl.handle.net/10.1007/s11127-006-9017-0
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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 129 (2006)
Issue (Month): 3 (December)
Pages: 249-262

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Handle: RePEc:kap:pubcho:v:129:y:2006:i:3:p:249-262

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Web page: http://www.springerlink.com/link.asp?id=100332

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  1. Blomberg, S. Brock & Hess, Gregory D., 2003. "Is the political business cycle for real?," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1091-1121, May.
  2. Abrams, Burton A & Butkiewicz, James L, 1995. " The Influence of State-Level Economic Conditions on the 1992 U.S. Presidential Election," Public Choice, Springer, vol. 85(1-2), pages 1-10, October.
  3. Grier, Kevin B., 1991. "Congressional influence on U.S. monetary policy : An empirical test," Journal of Monetary Economics, Elsevier, vol. 28(2), pages 201-220, October.
  4. John Maloney & Andrew C. Pickering & Kaddour Hadri, 2003. "Political Business Cycles and Central Bank Independence," Economic Journal, Royal Economic Society, vol. 113(486), pages C167-C181, March.
  5. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February.
  6. Ray C. Fair, 1976. "The Effects of Economic Events on Votes for President," Cowles Foundation Discussion Papers 418, Cowles Foundation for Research in Economics, Yale University.
  7. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  8. Athanasios Orphanides, 2003. "Historical monetary policy analysis and the Taylor rule," Finance and Economics Discussion Series 2003-36, Board of Governors of the Federal Reserve System (U.S.).
  9. Christopher F Baum & Mark E Schaffer & Steven Stillman, 2002. "IVREG2: Stata module for extended instrumental variables/2SLS and GMM estimation," Statistical Software Components S425401, Boston College Department of Economics, revised 02 Jan 2014.
  10. Allen, Stuart D. & McCrickard, Donald L., 1991. "The influence of elections on federal reserve behavior," Economics Letters, Elsevier, vol. 37(1), pages 51-55, September.
  11. Ray C. Fair, 1996. "Econometrics and Presidential Elections," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 89-102, Summer.
  12. Price, Simon, 1997. " Political Business Cycles and Macroeconomic Credibility: A Survey," Public Choice, Springer, vol. 92(3-4), pages 407-27, September.
  13. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  14. Londregan, John & Alesina, Alberto, 1993. "A Model of the Political Economy of the United States," Scholarly Articles 4552529, Harvard University Department of Economics.
  15. Faust, Jon & Irons, John S., 1999. "Money, politics and the post-war business cycle," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 61-89, February.
  16. Jon Faust & John Irons, 1996. "Money, politics and the post-war business cycle," International Finance Discussion Papers 572, Board of Governors of the Federal Reserve System (U.S.).
  17. Leertouwer, Erik & Maier, Philipp, 1999. "Who creates poltical business cycles? : (should central banks be blamed?)," Research Report 99E56, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
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