The outcome of this election will almost certainly affect the conduct of monetary policy.
  • We assume that, if President Obama is re-elected and Ben Bernanke does not seek or is not offered another term, Janet Yellen will be nominated to be Chair of the Federal Reserve Board (and thus also of the FOMC).
  • If Governor Romney is elected, he will most likely nominate one of his two principal economic advisers: Glenn Hubbard or Greg Mankiw. John Taylor, another adviser, would surely also be on the short list.

In three of the four cases, the prospective Chairs have written down a simple policy rule that would inform their policy decisions.

  • We have previously distinguished between dovish and hawkish rules.  
  • Dovish rules portray recent and current policy as restrictive, notwithstanding the prevailing near-zero funds rate. Hawkish rules portray policy today as too stimulative.
  • Dovish rules embed a much more aggressive response to departures from full employment than do hawkish rules.
  • Dovish rules prescribe a later first rate hike than do hawkish rules.

Using these rules as proxies for policy preferences, we can place three of the prospective Chairs along the dove-hawk continuum.

  • Taylor is unquestionably the most hawkish. His rule embeds a modest response to departures from full employment. The FOMC would already have raised rates under his rule.
  • Yellen is the most dovish. Based on her rule, policy should respond aggressively to departures from full employment, and the first rate hike would still be two years away.
  • Mankiw is somewhere in between. While his rule, like Taylor's, allows for only a modest response to departures from full employment, it nevertheless prescribes a later first rate hike that is still one year away.
  • While Glenn Hubbard has not written down a rule, his recent comments reveal that he is not as hawkish as Taylor, not as dovish as Yellen, but likely somewhat more hawkish than Mankiw.
This is from a commentary that was published on October 10, 2012.

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