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

34 Pages Posted: 7 Jan 2012

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

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2011

Abstract

This paper examines whether government ideology has influenced monetary policy in OECD countries. We use quarterly data in the 1980.1-2005.4 period and exclude EMU countries. Our Taylor-rule specification focuses on the interactions of a new time-variant index of central bank independence with government ideology. The results show that leftist governments have somewhat lower short-term nominal interest rates than rightwing governments when central bank independence is low. In contrast, short-term nominal interest rates are higher under leftist governments when central bank independence is high. The effect is more pronounced when exchange rates are flexible. Our findings are compatible with the view that leftist governments, in an attempt to deflect blame of their traditional constituencies, have pushed market-oriented policies 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 (December 1, 2011). DIW Berlin Discussion Paper No. 1180, Available at SSRN: https://ssrn.com/abstract=1980686 or http://dx.doi.org/10.2139/ssrn.1980686

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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