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Does the Fed Contribute to a Political Business Cycle?


  • Burton Abrams


  • Plamen Iossifov


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

Suggested Citation

  • Burton Abrams & Plamen Iossifov, 2006. "Does the Fed Contribute to a Political Business Cycle?," Public Choice, Springer, vol. 129(3), pages 249-262, December.
  • Handle: RePEc:kap:pubcho:v:129:y:2006:i:3:p:249-262
    DOI: 10.1007/s11127-006-9017-0

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    References listed on IDEAS

    1. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
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    6. repec:cup:apsrev:v:83:y:1989:i:02:p:567-573_08 is not listed on IDEAS
    7. Ray C. Fair, 1996. "Econometrics and Presidential Elections," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 89-102, Summer.
    8. Alesina, Alberto & Londregan, John, 1993. "A Model of the Political Economy of the United States," Scholarly Articles 4552529, Harvard University Department of Economics.
    9. Leertouwer, Erik & Maier, Philipp, 2001. "Who creates political business cycles: should central banks be blamed?," European Journal of Political Economy, Elsevier, vol. 17(3), pages 445-463, September.
    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. John Maloney & Andrew C. Pickering & Kaddour Hadri, 2003. "Political Business Cycles and Central Bank Independence," Economic Journal, Royal Economic Society, vol. 113(486), pages 167-181, March.
    12. 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.
    13. Jon Faust & John S. 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.).
    14. 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.
    15. 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.
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    17. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
    18. Orphanides, Athanasios, 2003. "Historical monetary policy analysis and the Taylor rule," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 983-1022, July.
    19. 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.
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