Private Sector Influences on Monetary Policy in the United States

Abstract

I examine the extent to which the Federal Reserve's monetary policy actions are correlated with the expressed wishes of private sector lobbying groups. I update and extend work by Havrilesky (1990, 1993) regarding the effect of signals from the banking industry through the Federal Advisory Council (FAC). I also construct a new database containing statements from non-financial interest groups. I find that monetary policy actions are correlated with signals from non-financial groups before 1979 but not after, and are correlated with signals from the FAC after 1979 but not before. I also find that the Fed's policy stance more closely matches the preferred stance of the banking industry after 1979. Copyright (c)2008 The Ohio State University.

Expansionary Monetary Policy and Bank Loan Loss Provisioning

“…10 The dependent variable is LLP it , which is the LLP of bank i during quarter t. The variable of interest, EMP t−1 , is proxied by either a continuous or a discrete measure of the monetary policy stance. As in Campello (2002), Weise (2008), andLo (2015), we use the BM index (BM t−1 ) as the main proxy for the monetary policy stance. 11 Boschen and Mills (1995) peruse the policy records of the FOMC and classify the stance of policy into five categories.…”

“…We examine the relationship between EMP and banks' DLLPs for a large sample of 14,623 public bank quarters in the U.S. from 1995Q1 to 2010Q4. Our primary measure of EMP is the Boschen-Mills (BM) index, which distinguishes expansionary from contractionary policy stances (Boschen and Mills 1995;Weise 2008;Lo 2015). Specifically, a BM index of 1 or 2 indicates expansionary periods, with 2 signifying strongly expansionary; a BM index of −2, −1, or 0 indicates non-expansionary periods, with −2 signifying strongly contractionary.…”

Political Pressure on Central Banks

“…The interpretation of these results requires some care, as the political pressure may reflect some omitted variable causing both higher inflation and more pressure, or may reflect EIU and BMI analysts' selective reporting on pressure that is consequential for inflation. As Weise (2008) notes, interest group signals to the central bank may respond to information about macroeconomic conditions. One possibility, for example, is that knowledge or expectations of low inflation would prompt political pressure for easier monetary policy.…”

Hobbes’ redoubt? Toward a geography of monetary policy

“…(Arrighi, 2007: 130) From this perspective, the breakdown of the labour-capital accord that characterized Fordism is the result of capital's realization of the long-run futility of Nixon's mode of crisis management (Ingham, 2004: 148), a movement that reached its crescendo with the imposition of global financial hardship by Volcker's Fed beginning in 1979 (ie, before Reagan). Not incidentally, it also marks the point at which the influence of the financial sector on monetary policy increased considerably, while that of non-financial interests declined, at least in the USA, Canada, and parts of western Europe (Panico and Rizza, 2004;Weise, 2008).…”