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Political Business Cycles and Monetary Policy Revisited – An Application of a Two-Dimensional Asymmetric Taylor Reaction Function

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  • Klose, Jens

Abstract

This paper uses two-dimensional asymmetric Taylor reaction functions for 16 OECD-countries to account for diff erent reactions to the inflation rate and output by central banks before or after an election of the fiscal authorities in the respective country. Important for such an investigation is not only the period before or after an election takes place but also whether the inflation rate and output are below or above their target or potential value because this information shows whether the central bank systematically deviates from the Taylor rule. Using a Panel-GMM we observe that in the OECD-countries there are political business cycles in monetary policy with respect to the inflation and output response. However, the supporting time horizon differs between both exogenous indicators and state of variables.

Suggested Citation

  • Klose, Jens, 2011. "Political Business Cycles and Monetary Policy Revisited – An Application of a Two-Dimensional Asymmetric Taylor Reaction Function," Ruhr Economic Papers 286, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:286
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    Cited by:

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    3. Oleg Nikolayevich Salmanov* & Natalia Vladimirovna Babina & Vadim Yaroslavovich Ovsiychuk & Irina Petrovna Drachena & Evgeniya Viktorovna Vikulina, 2018. "Analysis of the Monetary Policy Rule in the Russian Economy," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 304-312:3.
    4. Alexander Dentler, 2019. "Did the fed raise interest rates before elections?," Public Choice, Springer, vol. 181(3), pages 239-273, December.

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    More about this item

    Keywords

    Political business cycle; monetary policy; Taylor rule; asymmetries; Panel- GMM; Political business cycle; monetary policy; Taylor rule; asymmetries; Panel- GMM;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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

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