By Kelly H. Chang

Concentrating on how the President and the Senate impression financial coverage by way of appointing Federal Reserve Board participants, this e-book solutions 3 questions about the appointment procedure and its results. First, do politicians impact financial coverage through Federal Reserve appointments? moment, who affects the process--only the President or the President and the Senate? 3rd, how is the constitution of the Federal Reserve appointment procedure defined? The research extends the research of the Federal Reserve Board to the eu crucial financial institution.

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Additional resources for Appointing Central Bankers: The Politics of Monetary Policy in the United States and the European Monetary Union (Political Economy of Institutions and Decisions)

Example text

The rank orderings of these appointees determines the Fed median – a crucial variable in the formal model. The preceding also applies to the Senate median. The appointment process model also requires comparisons of individuals from three different institutions. In the model, the locations of the president, the Senate median, and the FOMC median relative to one another determines the predicted locations of the new appointee and the resulting FOMC median. Testing the model therefore requires estimating ideal points for all three sets of actors on one common scale.

The president and Senate still want to get as close as possible to SQ− . In the range of possible outcomes, that point is L2 – the actual outcome. Formally, the equilibrium of this particular game is defined on the path by the president’s nominee choice, x ≤ x5 and the Senate’s acceptance. The president and Senate receive payoffs based on SQ2 = x5+x7 . 4 Possible Outcomes I now generalize the example by first examining all the possible outcomes and then adding the president and Senate to the analysis and seeing what it means for the actual outcomes.

The possible outcomes are grouped into four ranges based on seat numbers: the first five seats, seat 6, seat 7, and the last five. Range 1 is defined as [L1, H1], Range 2 as [L2, H2], and so on. 2): if y ∈ {x1, x2, x3, x4, x5} Range 1 is defined by a vacancy in one of the first five FOMC seats. Once one of {x1, x2, x3, x4, x5} retires, the FOMC median will immediately move to SQ1 = x7. The first two sets of possible appointees do not uniquely define the outcome, SQ2. First, in (1) in the following text, all appointments to the left of x6 (x ≤ x6) will result in SQ0, the same median before the retirement of the outgoing member.

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