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Federal Reserve independence: the Fed Funds Rate under different regimes

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  • Adam T. Jones
  • Mathew W. Snyder

Abstract

The independence of central banks is an important feature of a properly functioning and stable monetary system. The structure of the Federal Reserve is designed to minimize political influence and insulate policy makers from political pressure. Nevertheless, members of the Fed's Federal Open Market Committee are members of society and informed about public opinion, potentially opening them to political bias, even if unintentional. This article uses a Taylor rule structure to examine changes in the Fed's reaction function to unemployment and inflation under different political administrations and chairman. Preliminary results show that the Fed is more responsive to the output gap under Republican presidential administrations and sets the Federal Funds Rate at a lower level under Republican administrations.

Suggested Citation

  • Adam T. Jones & Mathew W. Snyder, 2014. "Federal Reserve independence: the Fed Funds Rate under different regimes," Applied Economics Letters, Taylor & Francis Journals, vol. 21(18), pages 1262-1265, December.
    • Handle: RePEc:taf:apeclt:v:21:y:2014:i:18:p:1262-1265
    DOI: 10.1080/13504851.2014.920473
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    References listed on IDEAS

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    1. Gamber, Edward N. & Hakes, David R., 2006. "The Taylor rule and the appointment cycle of the chairperson of the Federal Reserve," Journal of Economics and Business, Elsevier, vol. 58(1), pages 55-66.
    2. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-162, May.
    3. William Roberts Clark & Vincent Arel-Bundock, 2013. "Independent but Not Indifferent: Partisan Bias in Monetary Policy at the Fed," Economics and Politics, Wiley Blackwell, vol. 25(1), pages 1-26, March.
    4. Hakes, David R, 1990. "The Objectives and Priorities of Monetary Policy under Different Federal Reserve Chairmen," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(3), pages 327-337, August.
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    Cited by:

    1. Christoph S. Weber, 2020. "The unemployment effect of central bank transparency," Empirical Economics, Springer, vol. 59(6), pages 2947-2975, December.
    2. Funashima, Yoshito, 2015. "The Fed-Induced Political Business Cycle," MPRA Paper 63654, University Library of Munich, Germany.
    3. Fang‐Shuo Chang & Shiu‐Sheng Chen & Po‐Yuan Wang, 2020. "Politics and the UK's monetary policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(5), pages 486-522, November.
    4. Katrin Wölfel & Christoph S. Weber, 2017. "Searching for the Fed’s reaction function," Empirical Economics, Springer, vol. 52(1), pages 191-227, February.
    5. Sharlywest Uwabor Eboigbe & Innocent Okwuosa, 2018. "Test of Linkage between Governance Style and National Economic Indices," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(1), pages 226-238, January.
    6. Funashima, Yoshito, 2016. "The Fed-induced political business cycle: Empirical evidence from a time–frequency view," Economic Modelling, Elsevier, vol. 54(C), pages 402-411.
    7. Beckmann, Joscha & Ademmer, Esther & Belke, Ansgar & Schweickert, Rainer, 2017. "The political economy of the impossible trinity," European Journal of Political Economy, Elsevier, vol. 47(C), pages 103-123.

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