DO POLITICS CAUSE REGIME SHIFTS IN MONETARY POLICY?

Authors

  • SHIU-SHENG CHEN,

    1. Chen: Department of Economics, National Taiwan University. No. 21, Hsu-Chow Road, Taipei, Taiwan. Phone +886 2-2351-9641 ext 481, Fax +886 2-2351-1826, E-mail sschen@ntu.edu.tw
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  • CHUN-CHIEH WANG

    1. Wang: Department of Political Economy, National Sun Yat-Sen University. No. 70, Lienhai Road, Kaohsiung, Taiwan. Phone +886-912177339, Fax +886-7-5255582, E-mail cxw359@mail.nsysu.edu.tw
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    • We thank the anonymous referee for useful comments and suggestions on an earlier version of this paper. Any remaining errors are our own. Shiu-Sheng Chen would like to acknowledge the financial assistance of grants from the National Science Council (NSC 100-2628-H-002-004-MY2).


Abstract

Whether or not politics cause changes in monetary policy is controversial in the literature. This article re-examines the link between politics and regime shifts in monetary policy using two alternative approaches. First, empirical results show that both the presidential and Federal Reserve Bank (Fed) chairmanship regimes do not influence monetary policy under the assumption that the Fed closely follows an interest rate rule. On the other hand, evidence also suggests that changes in political regimes are able to account for the deviations from the optimal Taylor rule. (JEL E52, E58, D78)

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