DO POLITICS CAUSE REGIME SHIFTS IN MONETARY POLICY?

Whether or not politics cause changes in monetary policy is controversial in the literature. This article re‐examines the link between politics and regime shifts in monetary policy using two alternative approaches. First, empirical results show that both the presidential and Federal Reserve Bank (Fed) chairmanship regimes do not influence monetary policy under the assumption that the Fed closely follows an interest rate rule. On the other hand, evidence also suggests that changes in political regimes are able to account for the deviations from the optimal Taylor rule. (JEL E52, E58, D78)