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Does Partisan Heritage Matter? The Case of the Federal Reserve

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  • Dino Falaschetti

Abstract

Received evidence suggests that changes in appointer- and overseer- preferences influence monetary policy (i.e., partisan heritage matters). Evidence presented here, on the other hand, is consistent with changes in the cost of pursuing a common preference influencing policy. I draw this evidence from a panel of Federal Open Market Committee (FOMC) votes and find support for the following conclusions. 1. Federal Reserve Board (FRB) governors who were nominated and confirmed by the same party (Republican or Democrat) prefer significantly looser policy than do other FOMC members. 2. Monetary policy is significantly looser when either party controls the oversight mechanism (i.e., the presidency and Senate) than when control is split. 3. Oversight acts less forcefully on district bank presidents than on FRB governors. In short, the present evidence suggests that political agents from both parties prefer loose money and pursue this preference more efficiently when their parties are aligned.

Suggested Citation

  • Dino Falaschetti, 2003. "Does Partisan Heritage Matter? The Case of the Federal Reserve," Microeconomics 0311003, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0311003
    Note: Type of Document - pdf; prepared on WinXP; pages: 23
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    References listed on IDEAS

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    1. Waller, Christopher J., 1992. "A bargaining model of partisan appointments to the central bank," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 411-428, June.
    2. Keech, William R. & Morris, Irwin L., 1997. "Appointments, Presidential Power, and the Federal Reserve," Journal of Macroeconomics, Elsevier, vol. 19(2), pages 253-267, April.
    3. Henry W. Chappell & Thomas M. Havrilesky & Rob Roy McGregor, 1993. "Partisan Monetary Policies: Presidential Influence Through the Power of Appointment," The Quarterly Journal of Economics, Oxford University Press, vol. 108(1), pages 185-218.
    4. Beck, Thorsten & Clarke, George & Groff, Alberto & Keefer, Philip & Walsh, Patrick, 2000. "New tools and new tests in comparative political economy - the database of political institutions," Policy Research Working Paper Series 2283, The World Bank.
    5. David Stasavage, 2000. "Private Investment and Political Uncertainty," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 25, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    6. Caporale, Tony & Grier, Kevin B, 1998. "A Political Model of Monetary Policy with Application to the Real Fed Funds Rate," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 409-428, October.
    7. Friedman, Milton, 1982. "Monetary Policy: Theory and Practice," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(1), pages 98-118, February.
    8. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, March.
    9. Hammond, Thomas H & Thomas, Paul A, 1989. "The Impossibility of a Neutral Hierarchy," Journal of Law, Economics, and Organization, Oxford University Press, vol. 5(1), pages 155-184, Spring.
    10. Hibbs, Douglas A, Jr, 1986. "Political Parties and Macroeconomic Policies and Outcomes in the United States," American Economic Review, American Economic Association, vol. 76(2), pages 66-70, May.
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    More about this item

    Keywords

    Federal Reserve; Appointments; Oversight;

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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