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Presidents, Fed chairs, and the deviations from the Taylor rule

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  • Chang, Fang-Shuo
  • Chen, Shiu-Sheng
  • Lin, Tzu-Yu
  • Wang, Po-Yuan

Abstract

This paper examines whether changes in US presidential administration and central bank turnover during the period 1976–2016 caused regime shifts in Taylor rule deviations. Using a dynamic stochastic general equilibrium model to construct the welfare-maximizing policy rule and deviations from the optimal rule, we find evidence that politics indeed play a key role in explaining these deviations. In addition to politics, unemployment rates and the interest rate spread significantly account for regime shifts in Taylor rule deviations.

Suggested Citation

  • Chang, Fang-Shuo & Chen, Shiu-Sheng & Lin, Tzu-Yu & Wang, Po-Yuan, 2023. "Presidents, Fed chairs, and the deviations from the Taylor rule," Macroeconomic Dynamics, Cambridge University Press, vol. 27(6), pages 1687-1705, September.
    • Handle: RePEc:cup:macdyn:v:27:y:2023:i:6:p:1687-1705_8
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