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

Jens Klose

No 286, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

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.

Keywords: Political business cycle; monetary policy; Taylor rule; asymmetries; Panel- GMM; Political business cycle; monetary policy; Taylor rule; asymmetries; Panel- GMM (search for similar items in EconPapers)
JEL-codes: E32 E43 E52 E58 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Political business cycles and monetary policy revisited–an application of a two-dimensional asymmetric Taylor reaction function (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:286

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