Presidents, Fed chairs, and the deviations from the Taylor rule

Fang-Shuo Chang, Shiu-Sheng Chen, Tzu-Yu Lin and Po-Yuan Wang

Macroeconomic Dynamics, 2023, vol. 27, issue 6, 1687-1705

Abstract: This paper examines whether changes in US presidential administration and central bank turnover during the period 1976–2016 caused regime shifts in Taylor rule deviations. Using a dynamic stochastic general equilibrium model to construct the welfare-maximizing policy rule and deviations from the optimal rule, we find evidence that politics indeed play a key role in explaining these deviations. In addition to politics, unemployment rates and the interest rate spread significantly account for regime shifts in Taylor rule deviations.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:27:y:2023:i:6:p:1687-1705_8

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