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The Greenspan Era: Discretion, Rather Than Rules

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  • Benjamin M. Friedman
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    Abstract

    What stands out in retrospect about U.S. monetary policy during the Greenspan Era is the ongoing movement away from mechanistic restrictions on the conduct of policy, together with a willingness on occasion to depart even from what more flexible guidelines dictated by contemporary conventional wisdom would imply, in the interest of carrying out the Federal Reserve System%u2019s dual mandate to pursue both stable prices and maximum employment. Part of this change was procedural %u2013 for example, the elimination of money growth targets. The most substantive demonstration of policy flexibility came in the latter half of the 1990s, as unemployment fell below 6% (in 1994), then below 5% (in 1997), and then remained below 5% for more than four years, yet the Federal Reserve did not tighten monetary policy. This policy stance was consistent with a view of the economy, including faster productivity growth and increased exposure to international competition, that Chairman Greenspan had articulated nearly a decade before.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12118.

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    Date of creation: Mar 2006
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    Publication status: published as Friedman, Benjamin M. "The Greenspan Era: Discretion, Rather Than Rules," American Economic Review, 2006, v96(2,May), 174-177.
    Handle: RePEc:nbr:nberwo:12118

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    Cited by:
    1. P Arestis & A Mihailov, 2009. "Flexible Rules cum Constrained Discretion: A New Consensus in Monetary Policy," Economic Issues Journal Articles, Economic Issues, vol. 14(2), pages 27-54, September.
    2. Banerjee, A. & Malik, S., 2012. "The changing role of expectations in US monetary policy: A new look using the Livingston Survey," Working papers 376, Banque de France.
    3. Brian Snowdon, 2007. "The New Classical Counter-Revolution: False Path or Illuminating Complement?," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 541-562, Fall.
    4. Marika Karanassou & Hector Sala & Dennis J. Snower, 2008. "The Evolution Of Inflation And Unemployment: Explaining The Roaring Nineties," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 334-354, December.
    5. Cinzia Alcidi & Alessandro Flamini & Andrea Fracasso, 2011. "Policy Regime Changes, Judgment and Taylor rules in the Greenspan Era," Economica, London School of Economics and Political Science, vol. 78(309), pages 89-107, January.
    6. Romaniuk, Katarzyna & Vranceanu, Radu, 2008. "Asset Prices and Assymetries in the Fed's Interest Rate Rule : a Financial Approach," ESSEC Working Papers DR 08006, ESSEC Research Center, ESSEC Business School.

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