The Federal Reserve May Be Politically ... - Pluto Huji Ac Il

Figure 5: Marginal effect of ination on the federal funds rate, conditional on the
election calendar and the partisanship of the sitting president, with 95% Condence
intervals..
Marginal effect of inflation on FFR
0.6
0.4
0.2
0.0
−0.2
−0.4
1.5
1.0
0.5
0.0
Inflation
Cleveland
0.8
0.6
0.4
0.2
0.0
−0.2
−0.4
−0.6
3
2
1
0
−1
−2
−3
Households
Professionals
2 4 6 8 10 12 14 16 2 4 6 8 10 12 14 16
Election proximity
Party
Republican
Democrat
show that the slope of these lines is statistically signicant, except when the survey of
professionals measure is used to measure expected ination. e results for the case
where Democrats control the White House differ slightly depending on the measure
of ination used. e bottom panel of 8 suggests that the Fed always turns a deaf ear
to the output gap when Democrats control the White House. e top panel suggests
that this is only the case when Democratic incumbents near re-election. Once again,
the coefficients on the triple interaction term Democrat × Election × Y gap are
signicantly different from zero (once again with the exception of the fourth measure
of expected ination). is indicates that the slopes of the black and gray lines differ
from each other in the statistical sense. at is, the effect of the electoral calendar on
the Fed’s reaction to the output gap depends on the party of the President.
16