Rules versus discretion at the Federal Reserve System: On to the second century
AbstractMuch of the experience of the U.S. Federal Reserve System, during the institution’s first hundred years, has revolved around controversies that fit squarely within the classical debate over rules versus discretion in economic policymaking. This paper looks back at the major episodes in this history since World War II, including the initial freeing of monetary policy from war-related interest-pegging, the Federal Reserve’s delayed but ultimately successful response to the inflation of the 1970s and early 1980s, the brief experiment with monetary aggregate targets, the extraordinary actions prompted by the 2007-9 financial crisis, and the current tentative exploration of inflation targeting. The paper concludes that the tension between the desire for rule-based policymaking and the practicalities that lead central bankers to preserve discretion in actual policy decisions does not admit of any easy, straightforward solution, and therefore that this tension is likely to persist into the Federal Reserve’s next century too.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 34 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/inca/622617
Monetary policy; Rules versus discretion; Interest rates; Monetary targets; Inflation targeting;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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