A political model of monetary policy with application to the real Fed funds rate

Tony Caporale, Kevin B. Grier

Research output: Contribution to journalArticle

16 Scopus citations

Abstract

We 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.

Original languageEnglish
Pages (from-to)409-428
Number of pages20
JournalJournal of Law and Economics
Volume41
Issue number2
DOIs
StatePublished - Oct 1998

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