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Political Regime Change and the Real Interest Rate
Tony Caporale and Kevin B. Grier
Journal of Money, Credit and Banking
Vol. 32, No. 3, Part 1 (Aug., 2000), pp. 320-334
Published by: Ohio State University Press
Stable URL: http://www.jstor.org/stable/2601168
Page Count: 15
You can always find the topics here!Topics: Interest rates, Political parties, Modeling, Real interest rates, Time series models, Federal Reserve Bank, Statistical models, Political regimes, Monetary policy, Empirical evidence
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The effect of policy regime changes on real interest rates has important implications for financial and economic theory. However, there is little current evidence that such changes have any impact on the level of real interest rates. In this paper, we estimate both the number and location of structural breaks in the three-month U.S. real interest rate using a global optimization technique developed by Bai and Perron (1998). We compare the timing of large political changes to the dating of these structural breaks. We find that changes in party control of either a branch of Congress or the presidency are largely consistent with the timing of real rate shifts, while changes in the Federal Reserve chair are generally inconsistent with real rate regime shifts.
Journal of Money, Credit and Banking © 2000 Ohio State University Press