Monetary policy and anxious presidents: the effects of monetary shocks on presidential job approval

Using high-frequency identification, I show that the Federal Reserve significantly influences its political environment. A 50-bp exogenous contractionary monetary shock is associated with a decline in the U.S. president's job approval by up to five percentage points in the subsequent 12 to 24 months. This loss exceeds the victory margin in six out of the eight latest elections. My findings also suggest that presidents who are in the second half of their terms are particularly vulnerable to monetary shocks. Such vulnerability is largely explained by the evolving attitudes toward key macroeconomic factors like unemployment and inflation over the presidential life cycle.