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A Dual Mandate for the Federal Reserve: The Pursuit of Price Stability and Full Employment

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Author Info
Willem Thorbecke () (Department of Economics, George Mason University, Jerome Levy Economics Institute)

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Abstract

The Federal Reserve currently pursues both price stability and full employment. Congress is debating whether to make price stability the overriding goal of monetary policy. This paper argues against such a change for several reasons. First, under the current mandate the U.S. has experienced low inflation and low unemployment, while many inflation-targeting countries have experienced double-digit unemployment. Second, the costs of unemployment are substantial while the costs of moderate inflation are probably not large. Third, central bankers need prodding to pursue goals other than inflation. Fourth, if the price level is not free to adjust, an adverse supply shock can cause large increases in unemployment.

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File URL: http://college.holycross.edu/eej/Volume28/V28N2P255_268.pdf
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Publisher Info
Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 28 (2002)
Issue (Month): 2 (Spring)
Pages: 255-268
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Handle: RePEc:eej:eeconj:v:28:y:2002:i:2:p:255-268

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Related research
Keywords: Employment; Full Employment; Inflation; Monetary Policy; Monetary; Policy; Prices; Unemployment;

Other versions of this item:

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
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution

References listed on IDEAS
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    Other versions:
  17. Romer, David, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 869-903, November. [Downloadable!] (restricted)
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    Other versions:
  21. Benjamin M. Friedman & Kenneth N. Kuttner, 1996. "A Price Target for U.S. Monetary Policy? Lessons from the Experience with Money Growth Targets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-1), pages 77-146. [Downloadable!]
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jorg Bibow, . "Easy Money Through The Back Door: The Markets Vs. The ECB," Economics Public Policy Brief Archive 65, Levy Economics Institute, The. [Downloadable!]
  2. Joerg Bibow, 2005. "Refocusing the ECB on Output Stabilization and Growth through Inflation Targeting?," Economics Working Paper Archive wp_425, Levy Economics Institute, The. [Downloadable!]
  3. Joreg Bibow, 2005. "Refocusing the ECB on Output Stabilization and Growth through Inflation Targeting?," Macroeconomics 0507017, EconWPA. [Downloadable!]
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