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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
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

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.

Type
Articles
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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