Is There a Dead Spot? New Evidence on FOMC Decisions Before Elections

Abstract

Using new data that chronicle the Fed's internal forecast of the output gap from 1973 to 1998, this paper tests for an electoral cycle in the decisions of the Federal Open Market Committee (FOMC). The paper provides evidence of a dead spot in the committee's decisions before presidential elections. For given values of these internal forecasts, the FOMC is less likely to decide to tighten monetary policy in the year preceding a presidential election than at other times.