Kuper & Veurink: Central Bank Independence and Political Pressure in the Greenspan Era

ABSTRACT:

This paper investigates whether political pressure from incumbent presidents influences the Fed’s monetary policy during the period that Alan Greenspan was the chairman of the United States Federal Reserve Board. A modified Taylor rule with time-varying coefficients will be used to test well-known political-economic theories of Nordhaus (1975) and Hibbs (1987). The findings suggest that the Fed under Greenspan did not create election driven monetary cycles, but was less inflation averse with a Democratic president.

 

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