Central bank independence and political pressure in the Greenspan era

This paper investigates whether political pressure from incumbent
presidents influences the Fed’s monetary policy during the period that Alan Greenspan was the chairman of the United States Federal Reserve Board. A modified Taylor rule - featuring the inflation rate and the unemployment
gap rather than the output gap - with time-varying coefficients will be used to test well-known political-economic theories of Nordhaus (1975) and Hibbs (1987). This novel approach addresses some of the disadvantages of Ordinary Least Squares, and has the additional benefit of allowing the use of mixed frequency data. Our findings suggest that the Fed under Greenspan did not create election driven monetary cycles, but was less inflation avers
with a Democratic president.