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Does the Greenspan era provide evidence on leadership in the FOMC?

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  • El-Shagi, Makram
  • Jung, Alexander

Abstract

The aim of this paper is to examine whether Chairman Greenspan influenced the Reserve Bank Presidents. This question is interesting, because it has been argued that their preferences would be more persistent compared to those of the Governors. We estimate individual Taylor-type reaction functions for the Federal Reserve Districts using their voiced interest rate preferences during the policy go-around as well as real-time economic information on the inflation and unemployment gap. A bootstrap analysis exploits information contained in these reaction functions and constructs counterfactual distributions of disagreement among the Federal Reserve Districts, assuming the absence of factors that could have enforced consensus. We compare these simulated distributions with the observed disagreement during the committee deliberations and find empirical evidence in favour of coordination. This detected coordination helped to bring the preferences of the Federal Reserve Districts more in line with Chairman Greenspan’s views. JEL Classification: C15, C53, D72, E58

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1579.

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Date of creation: Aug 2013
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Handle: RePEc:ecb:ecbwps:20131579

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Keywords: bootstrap; federal Reserve Districts; greenspan era; individual reaction functions; real-time data;

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References

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  1. Alessandro Riboni & Francisco Ruge-Murcia, 2007. "Preference heterogeneity in monetary policy committees," DNB Working Papers 157, Netherlands Central Bank, Research Department.
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Cited by:
  1. El-Shagi, Makram & Jung, Alexander, 2013. "Does the Greenspan era provide evidence on leadership in the FOMC?," Working Paper Series 1579, European Central Bank.
  2. A. Jung, 2013. "Policymakers’ Interest Rate Preferences: Recent Evidence for Three Monetary Policy Committees," International Journal of Central Banking, International Journal of Central Banking, vol. 9(3), pages 150-197, September.

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