The Taylor rule and the appointment cycle of the chairperson of the Federal Reserve

We estimate a forward-looking Taylor rule on a meeting-by-meeting basis using real-time forecasts for the Volcker and Greenspan chairmanships. We find that under Volcker the Fed responded countercyclically to inflation but had no significant response to the output gap. Under Greenspan, the Fed responded countercyclically to both inflation and the output gap. We then test the hypothesis that monetary policy varies systematically with the appointment cycle of the chairperson of the Fed. During both the Volcker and Greenspan chairmanships, we find that in the five-meeting periods prior to renomination, the Fed becomes significantly less responsive to the macroeconomy. Further, under both Volcker and Greenspan, we find evidence that the Fed raises its inflation target in the periods prior to renomination.