Fed Indepence, Part 1

I want to continue the look at the difference in the performance of Democrats and Republicans when measured by real (GDP less increase in national debt) per capita and the effect of the Fed on these differences. But, I have to do some cleaning and there are some preliminary steps along the way. One is a look at Fed Independence.

Sadly, I didn’t have the time to clean the data I wanted for today’s post, so consider this one first in a set of posts…

The table below looks at nominal changes in the 3 month supply of M2 in November of a Presidential election year, in November of the year before the Presidential election year, and in November of the year after a Presidential election year. It shows this change both when an incumbent is running and when an incumbent is not running. Not surprisingly, when an incumbent is running, the growth rate in M2 tends to be higher than in years for which there is no election, and it also tends to be higher than when there is no incumbent running.

The table also breaks out the growth rate when the Presidential incumbent and the Fed chief come from the same party… Again, not surprisingly, when the Fed chief and the incumbent are from the same party, there is a bigger increase in M2 than when the Fed chief and the incumbent are from different parties.

I would caution readers that the data is nominal and does not account for population change. Its possible that the years in which incumbents of the same party as the Fed chief were running just happen to have, on average, higher inflation rates, necessitating greater increases in M2. I hope to get around to modifying the data for that tomorrow. Still, very preliminary results seem to indicate the Fed is not exactly unbiased. Anyone surprised? Anyone?


Monthly M1 and M2


As always, let me know if you want my spreadsheet.