The impact of political pressure on the Fed
In this paper, Thomas Drechsel provides a novel quantitative evidence on the macroeconomic consequences of political pressure on monetary policy, using data spanning nearly a century of U.S. history. The author builds a data set of personal interactions between U.S. Presidents and Fed officials between 1933 and 2016 and develops a narrative identification strategy based on President Nixon’s pressure on Fed Chair Burns. He finds that:
- Political pressure shocks on the Federal Reserve lead to strong and persistent increases in inflation. The effects are substantial, with estimates suggesting that exerting political pressure 50% as much as Nixon did over a 6-month period can increase the U.S. price level by more than 8% after several years.
- The effects of political pressure shocks on real economic activity are statistically weak but tend to be slightly negative. This suggests that political pressure on the Fed may not be successful in stimulating economic growth.
- Political pressure shocks contributed to inflationary episodes beyond just the Nixon era. The study finds evidence of meaningful political pressure shocks during other administrations in the 1960s and 1970s, while they played virtually no role during periods like the Clinton administration in the 1990s.
- Drechsel quantifies that increasing political pressure by half as much as Nixon did, for a period of six months, raises the price level by more than 8% over the long run. This provides a concrete measure of the inflationary impact of political interference with the Fed.
Estimating the Effects of Political Pressure on the Fed: A Narrative Approach with New Data
Author: Thomas Drechsel
From: University of Maryland
Politics and the ECB
Ferrara et al. provide insights into the relationship between elected politicians and the ECB, highlighting the dynamic nature of political attitudes towards this important technocratic institution and the role of information in shaping these attitudes. Their analysis is based on novel data from an elite survey of the Members of the European Parliament. Their findings include:
1. Political dimensions significantly influence attitudes towards the ECB mandate:
- Right-wing politicians favor a narrowly focused mandate on price stability.
- Both left/right and pro/anti-European dimensions help explain politicians’ views on the ECB’s objectives.
2. Politicians’ attitudes are not static and can be influenced by information:
- The information set politicians are exposed to shapes their attitudes towards the ECB’s mandate and policy conduct, regardless of ideological orientations.
- The information provided by the ECB to policymakers is crucial for building trust and support for the ECB’s activities.
- A ‘hawkish’ message from the ECB negatively affects political approval and trust in the institution.
- The framing of ECB communication influences attitudes towards policy conduct but does not significantly affect views on the supranational nature and independence of the European Monetary Union architecture.
3. Local macroeconomic conditions affect evaluations of the ECB’s role:
- Negative labor market conditions lead politicians to place more weight on the ECB’s pursuit of low unemployment relative to price stability.
What European politicians think of the ECB: Experimental evidence
By: Federico Maria Ferrara, Donato Masciandaro, Manuela Moschella, Davide Romelli – ECB, Bocconi University, University Of Bologna, Trinity College Dublin
