The powers that are: central bank independence in the Greenspan era

Gerard Kuper

Empirical Economics, 2018, vol. 54, issue 2, No 7, 485-499

Abstract: Abstract This paper investigates political pressure from incumbent Presidents and Congress on US monetary policy during the period that Greenspan was the chairman of the Federal Reserve. We propose an expectations-augmented Taylor rule in which we replace realized values with expectations, and use the unemployment gap instead of the output gap. We apply a state-space framework that allows the use of mixed frequency data. Our findings suggest that the Federal Reserve under Greenspan did not create election driven cycles, but also did not strictly follow the Taylor rule. The deviations from the Taylor rule are not driven by partisan politics, but are rooted in the expected economic conditions.

Keywords: Taylor rule; Central bank independence; Political business cycles; State space (search for similar items in EconPapers)
JEL-codes: E42 E47 E58 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00181-016-1225-y

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