Friday, March 25, 2011

What influences Fed presidents?

The European Central Bank is still a recent creation, so you can excuse its national governors for putting their country's interest first in the conduct of monetary policy. What about another federal central bank that is much older and whose governors territory does not necessarily coincide with political boundaries, the Federal Reserve System of the US?

Bernd Hayo and Matthias Neuenkirch have analyzed the speeches of Federal Reserve presidents over the span of twelve years and come to the conclusions that they equally represent the national and regional interests, except when it is not their turn to vote, when their region comes first. They find this by trying to fit a Taylor Rule to their positions, using a price index, a national and a regional unemployment rate. Unfortunately (and surprisingly), there are no regional price indexes in the US, which could have reinforced the regional focus of the presidents. Still, I am surprised how much they lobby for the general interest. After all, they are selected to represent their region.

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