A Political Model of Monetary Policy with Application to the Real Fed Funds RateJournal of Law and Economics
AbstractWe construct an empirical model of U.S. monetary policy assuming that the Federal Reserve is an ordinary federal bureaucracy. We use the real Federal Funds rate as our policy measure and show the existence of significant executive, legislative, and bureaucratic influence on the real rate of interest from 1961 to 1996. We find that presidential party is an adequate statistical measure of executive influence and that the voting scores of the Senate Banking Committee leadership best represent legislative influence. We argue that political changes cause systematic and predictable changes in monetary policy.
CopyrightCopyright © 1998, University of Chicago Press.
PublisherThe University of Chicago Press
Place of PublicationChicago, IL
Citation InformationTony Caporale and Kevin B. Grier. "A Political Model of Monetary Policy with Application to the Real Fed Funds Rate" Journal of Law and Economics Vol. 41 Iss. 2 (1998)
Available at: http://works.bepress.com/tony_caporale/3/