How Does Political Pressure Impact the Efficacy of Monetary Policy in the US?

There has been a big push for more central bank independence in the last several decades. In my thesis, I examine whether monetary policy changes in response to political pressure. In particular, I derive a political pressure index on the Fed from conducting text mining on about nine decades of presidential speeches. I then examine the effect of political pressure on the Fed’s reaction function to two key macroeconomic targets: inflation and unemployment rate. I find that the more the President talks about the Fed, the more the Fed deviates from targeting inflation to unemployment rate.