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Does Government Ideology Matter in Monetary Policy? – A Panel Data Analysis for OECD Countries

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Author Info
Ansgar Belke ()
Niklas Potrafke
Abstract

This paper examines the effect of government ideology on monetary policy in a quarterly data set of 15 OECD countries in the period 1980.1–2005.4. Our Taylor-rule specification focuses on the interactions of a new time-variant indicator for central bank independence and government ideology. The results suggest that leftist governments did not decrease short term nominal interest rates at all. In contrast, short term nominal interest rates were higher under leftist governments. A potential reason for this finding might be that leftist governments have sought to make a market-oriented policy shift by delegating monetary policy to conservative central bankers.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0094.

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Length: 39 pages
Date of creation: Mar 2009
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Handle: RePEc:rwi:repape:0094

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Related research
Keywords: Monetary policy; Taylor rule; government ideology; partisan politics; central bank independence; panel data;

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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