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Economics, politics and the federal funds markets: does the Fed play politics?

  • O. David Gulley
  • Jahangir Sultan

No, the Fed does not appear to play politics with respect to setting the federal funds rate. We examine the federal funds spot and futures rates to infer the Fed's response to political pressure from partisan politics during election and nonelection years. We find little evidence that political variables influence either market, suggesting that spot and futures traders act as if the Fed's behaviour is similar across election and nonelection years. Our evidence suggests that federal funds traders believe the Fed generally behaves in a politically neutral fashion.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603107.2011.562163
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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 21 (2011)
Issue (Month): 14 ()
Pages: 1005-1019

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Handle: RePEc:taf:apfiec:v:21:y:2011:i:14:p:1005-1019
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