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Presidents, Fed chairs, and the deviations from the Taylor rule

Published online by Cambridge University Press:  31 August 2022

Fang-Shuo Chang ,
Shiu-Sheng Chen Open the ORCID record for Shiu-Sheng Chen [Opens in a new window] ,
Tzu-Yu Lin  and
Po-Yuan Wang
Fang-Shuo Chang
Affiliation:
National Taiwan University, Taipei, 10617, Taiwan
Shiu-Sheng Chen*
Affiliation:
National Taiwan University, Taipei, 10617, Taiwan
Tzu-Yu Lin
Affiliation:
National Cheng Kung University, Tainan, Taiwan
Po-Yuan Wang
Affiliation:
National Taiwan University, Taipei, 10617, Taiwan
*
*Corresponding author. E-mail: sschen@ntu.edu.tw
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Abstract

This paper examines whether changes in US presidential administration and central bank turnover during the period 1976–2016 caused regime shifts in Taylor rule deviations. Using a dynamic stochastic general equilibrium model to construct the welfare-maximizing policy rule and deviations from the optimal rule, we find evidence that politics indeed play a key role in explaining these deviations. In addition to politics, unemployment rates and the interest rate spread significantly account for regime shifts in Taylor rule deviations.

Keywords

Political changesTaylor rule deviationsoptimal Taylor ruleP26E42E52E58

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 27 , Issue 6 , September 2023 , pp. 1687 - 1705
Copyright
© The Author(s), 2022. Published by Cambridge University Press

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Footnotes

†

We would like to thank two anonymous referees for comments and suggestions. Any remaining errors are our own.

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