Reliable and unreliable partisan appointees to the Board of Governors

Every new appointment to the Board of Governors in recent years has triggered speculation as to how the new Governor will vote in FOMC meetings. While several studies have hinted at partisan voting behavior by Governors, no study has yet attempted to identify reliable and unreliable partisan voting behavior and to pinpoint the background characteristics of Governors that distinguish between the two. This paper indicates that Board members with a background in economics consistently voted in line with the economic ideology of the appointing President. Noneconomists on the Board, however, displayed no such partisan voting behavior and were seen to be influenced by pressures emanating from the Administration and by the monetary environment prior to their appointment. Over the 1951 to 1987 period, most Presidents have appointed reliable Governors earlier in their Presidential terms (when the returns from being able to influence subsequent monetary policy are great) and have chosen unreliable Governors later in their terms (when election support from the interest groups that these unreliables represent is important).The results of the present paper suggest skepticism toward the recent spate of rational expectations — game-theoretic models which feature a dictatorial policy maker gaming atomistic market participants whose only political activity, voting, generates monetary surprises followed by convergence to an equilibrium. Because of their obsession with the ceremonial formalism of their genre, these models ignore a vast complementary literature and, as a consequence, display conspicuously flimsy institutional and historical premises. Instead, the present paper argues for the greater relevance of models of uncoordinated interaction between multiple political and private principals and Federal Reserve agents.