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

Abstract

Section I below is a review of the literature on empirical models of bureaucratic behavior, concentrating on those few heretics that have examined the Fed as a bureau. Section II explains our choice of monetary policy indicator. Section III presents the specific hypotheses we will test. Section IV contains our main empirical results and some specification tests. Section V shows that our political influence results hold up if we use the nominal Fed Funds rate as our policy indicator with the inflation rate included on the right hand side of the model as an endogenous regressor. Section VI contains our conclusions.