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Does Partisan Heritage Matter? The Case of the Federal Reserve

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  • Dino Falaschetti

Abstract

Received evidence suggests that changes in appointer- and overseer-preferences influence monetary policy (i.e., partisan heritage matters). Evidence presented here, on the other hand, is consistent with changes in the cost of pursuing a common preference influencing policy. I draw this evidence from a panel of Federal Open Market Committee (FOMC) votes and find support for the following conclusions: (1) Federal Reserve Board (FRB) governors who were nominated and confirmed by the same party (Republican or Democrat) prefer significantly looser policy than do other FOMC members. (2) Monetary policy is significantly looser when either party controls the oversight mechanism (i.e., the presidency and Senate) than when control is split. (3) Oversight acts less forcefully on district bank presidents than on FRB governors. In short, the present evidence suggests that political agents from both parties prefer loose money and pursue this preference more efficiently when their parties are aligned. Copyright 2002, Oxford University Press.

Suggested Citation

  • Dino Falaschetti, 2002. "Does Partisan Heritage Matter? The Case of the Federal Reserve," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 488-510, October.
    • Handle: RePEc:oup:jleorg:v:18:y:2002:i:2:p:488-510
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    Citations

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    Cited by:

    1. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401009, University Library of Munich, Germany.
    2. repec:diw:diwwpp:dp1180 is not listed on IDEAS
    3. repec:zbw:rwirep:0094 is not listed on IDEAS
    4. Belke, Ansgar & Potrafke, Niklas, 2012. "Does government ideology matter in monetary policy? A panel data analysis for OECD countries," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1126-1139.
    5. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401006, University Library of Munich, Germany.
    6. Ansgar Belke & Niklas Potrafke, 2009. "Does Government Ideology Matter in Monetary Policy? – A Panel Data Analysis for OECD Countries," Ruhr Economic Papers 0094, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    7. Dahlvik Julia & Pohn-Weidinger Axel & Kollegger Martina, 2020. "Independence despite Political Appointment ? The Curious Case of the Austrian Ombudsman Board," NISPAcee Journal of Public Administration and Policy, Sciendo, vol. 13(2), pages 181-210, December.
    8. Dino Falaschetti, 2003. "Voter Turnout, Regulatory Commitment, and Capital Accumulation: Evidence from the US Telecommunications Sector," Microeconomics 0311002, University Library of Munich, Germany.
    9. Sylvester Eijffinger & Ronald Mahieu & Louis Raes, 2016. "Monetary Policy Committees, Voting Behavior and Ideal Points," BAFFI CAREFIN Working Papers 1628, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

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