The influence of government ideology on monetary policy: New cross-country evidence based on dynamic heterogeneous panels

Using data of 23 OECD countries over the 1980-2005 period, we examine whether government ideology affects monetary policy, conditional on central bank independence. Unlike previous studies in this line of literature, we estimate central bank behavior using forward-looking and real-time data in Taylor rule models and use estimators that allow for heterogeneity across countries. Our models with heterogeneous slope coefficients for the full sample do not suggest partisan effects. We also do not find evidence that central bank behavior is conditioned by the interaction of the ideology of the incumbent government and the electoral calendar.