Politicians, deficits, and monetary policy in the U.S. revisited

This paper reconsiders the evidence regarding the existence of executive and congressional influences on monetary policy in the U.S. Results regarding the source of the federal deficit (cyclical or structural) provide evidence that structural deficits occurring under Democratic presidential administrations have a significant impact on money growth rates, but those occurring under their Republican counterparts may not. Although the evidence regarding cyclical deficits is statistically weaker, their more limited influence on monetary growth rates appears to be similar regardless of whether they occur under Democratic or Republican presidents. This contrasts with previous research which suggests that cyclical deficits influence monetary growth rates under Democratic administrations while structural deficits generated a similar monetary response regardless of which party held the presidency. (JEL E52).