Does Government Ideology Matter in Monetary Policy? - A Panel Data Analysis for OECD Countries

39 Pages Posted: 8 Apr 2009

See all articles by Ansgar Hubertus Belke

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Niklas Potrafke

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

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Date Written: March 1, 2009

Abstract

This paper examines the effect of government ideology on monetary policy in a quarterly data set of 15 OECD countries in the period 1980.1-2005.4. Our Taylor-rule specification focuses on the interactions of a new time-variant indicator for central bank independence and government ideology. The results suggest that leftist governments did not decrease short term nominal interest rates at all. In contrast, short term nominal interest rates were higher under leftist governments. A potential reason for this finding might be that leftist governments have sought to make a market-oriented policy shift by delegating monetary policy to conservative central bankers.

Keywords: Monetary policy, Taylor rule, government ideology, partisan politics, central bank independence, panel data

JEL Classification: E52, E58, D72, C23

Suggested Citation

Belke, Ansgar Hubertus and Potrafke, Niklas, Does Government Ideology Matter in Monetary Policy? - A Panel Data Analysis for OECD Countries (March 1, 2009). Ruhr Economic Paper No. 94, Available at SSRN: https://ssrn.com/abstract=1374825 or http://dx.doi.org/10.2139/ssrn.1374825

Ansgar Hubertus Belke (Contact Author)

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Niklas Potrafke

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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