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Does the Federal Reserve Care about the Rest of the World?

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  • Barry Eichengreen

Abstract

Many economists are accustomed to thinking about Federal Reserve policy in terms of the institution's "dual mandate," which refers to price stability and high employment, and in which the exchange rate and other international variables matter only insofar as they influence inflation and the output gap -- which is to say, not very much. In fact, this conventional view is heavily shaped by the distinctive and peculiar circumstances of the last three decades, when the influence of international considerations on Fed policy has been limited. In fact, the Federal Reserve paid significant attention to international considerations in its first two decades, followed by relative inattention to such factors in the two-plus decades that followed, then back to renewed attention to international aspects of monetary policy in the 1960s, before the recent period of benign neglect of the international dimension. I argue that in the next few decades, international aspects are likely to play a larger role in Federal Reserve policy making than at present.

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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 27 (2013)
Issue (Month): 4 (Fall)
Pages: 87-104

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Handle: RePEc:aea:jecper:v:27:y:2013:i:4:p:87-104

Note: DOI: 10.1257/jep.27.4.87
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  1. Frederic S. Mishkin, 2011. "Monetary Policy Strategy: Lessons From The Crisis," Chapters, European Central Bank.
  2. Orphanides, Athanasios, 1999. "The Quest for Prosperity Without Inflation," Working Paper Series 93, Sveriges Riksbank (Central Bank of Sweden).
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  7. Michael D. Bordo & Barry Eichengreen, 2008. "Bretton Woods and the Great Inflation," NBER Working Papers 14532, National Bureau of Economic Research, Inc.
  8. Barry Eichengreen & Marc Flandreau, 2012. "The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914–1939," Open Economies Review, Springer, vol. 23(1), pages 57-87, February.
  9. Jeffrey Sachs, 1985. "The Dollar and the Policy Mix: 1985," NBER Working Papers 1636, National Bureau of Economic Research, Inc.
  10. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1.
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  12. Reinhart, Carmen M. & Rogoff, Kenneth S., 2013. "Shifting Mandates: The Federal Reserve's First Centennial," Scholarly Articles 11129184, Harvard University Department of Economics.
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Cited by:
  1. Bordo, Michael D. & Humpage, Owen F., 2014. "Federal Reserve Policy and Bretton Woods," Working Paper 1407, Federal Reserve Bank of Cleveland.
  2. Fischer, Stanley, 2014. "The Federal Reserve and the Global Economy : a speech at the Per Jacobsson Foundation Lecture, 2014 Annual Meetings of the International Monetary Fund and the World Bank Group, Washington, D.C., Octob," Speech 820, Board of Governors of the Federal Reserve System (U.S.).
  3. Eichengreen, Barry, 2014. "Doctrinal determinants, domestic and international of Federal Reserve policy, 1914-1933," Globalization and Monetary Policy Institute Working Paper 195, Federal Reserve Bank of Dallas.
  4. Powell, Jerome H., 2013. "Advanced economy monetary policy and emerging market economies," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 1-17.
  5. Edwin M. Truman, 2014. "The Federal Reserve Engages the World (1970-2000): An Insider’s Narrative of the Transition to Managed Floating and Financial Turbulence," Working Paper Series WP14-5, Peterson Institute for International Economics.

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