Government ideology and monetary policy in OECD countries

Arbeitspapier

We examine the extent to which government ideology has influenced monetary policy in OECD countries since the 1970s. In line with important changes in the global econ-omy and differences across countries, regression results yield heterogeneous infer-ences depending on the time period and the exchange rate regime/central bank de-pendence of the countries in the sample. Over the 1972-2010 period, Taylor rule speci-fications do not suggest a relationship between government ideology and monetary policy as measured by the short-term nominal interest rate or the rate of monetary expansion minus GDP trend growth. Monetary policy was, however, associated with government ideology in the 1990s: short-term nominal interest rates were lower under leftwing than rightwing governments when central banks depended on the directives of the government and exchange rates were flexible. Very independent central banks, however, raised interest rates when leftwing governments were in office. We describe the historical evidence for several individual countries.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ifo Working Paper ; No. 296

Classification and Topics

• Classification: Wirtschaft ; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior ; Monetary Policy ; Central Banks and Their Policies ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
• Subject: Government ideology ; monetary policy ; partisan politics ; panel data

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cahan, Dodge ; Dörr, Luisa ; Potrafke, Niklas
• Event: Veröffentlichung
• (who): ifo Institute - Leibniz Institute for Economic Research at the University of Munich
• (where): Munich
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/199070
• Last update: 10.03.2025, 11:43 AM CET