Government ideology and monetary policy in OECD countries

Dodge Cahan, Luisa Doerr and Niklas Potrafke
Authors registered in the RePEc Author Service: Luisa Dörr

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: We examine the extent to which government ideology has influenced monetary policy in OECD countries since the 1970s. In line with important changes in the global economy and differences across countries, regression results yield heterogeneous inferences depending on the time period and the exchange rate regime/central bank dependence of the countries in the sample. Over the 1972-2010 period, Taylor rule specifications do not suggest a relationship between government ideology and monetary policy as measured by the short-term nominal interest rate or the rate of monetary expansion minus GDP trend growth. Monetary policy was, however, associated with government ideology in the 1990s: short-term nominal interest rates were lower under leftwing than rightwing governments when central banks depended on the directives of the government and exchange rates were flexible. Very independent central banks, however, raised interest rates when leftwing governments were in office. We describe the historical evidence for several individual countries.

Date: 2019
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Citations: View citations in EconPapers (9)

Published in Public Choice 3-4 181(2019): pp. 215-238

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Related works:
Journal Article: Government ideology and monetary policy in OECD countries (2019)
Working Paper: Government ideology and monetary policy in OECD countries (2019)
Working Paper: Government ideology and monetary policy in OECD countries (2019)
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