IDEAS home Printed from https://ideas.repec.org/a/eee/revfin/v21y2012i3p111-119.html
   My bibliography  Save this article

A Bayesian interpretation of the Federal Reserve's dual mandate and the Taylor Rule

Author

Listed:
  • Putnam, Bluford H.
  • Azzarello, Samantha

Abstract

When the Federal Reserve was established by the US Congress in 1913, its charter mandated that the new central bank “promote an elastic currency” and the institution was given extraordinary powers to serve as a lender of last resort to the banking system. Congress was reacting to the cycle of financial panics that had beset the country since the Civil War and had worsened with the Panic of 1907. Congress sought to find a remedy to prevent runs on banks turning into full-fledged financial crises. The term “elastic” in the opening words of the charter was intended to underscore the need for a robust banking system that could withstand shocks and not collapse upon itself. There was no mention whatsoever of a dual mandate of promoting price stability and encouraging full employment.

Suggested Citation

  • Putnam, Bluford H. & Azzarello, Samantha, 2012. "A Bayesian interpretation of the Federal Reserve's dual mandate and the Taylor Rule," Review of Financial Economics, Elsevier, vol. 21(3), pages 111-119.
  • Handle: RePEc:eee:revfin:v:21:y:2012:i:3:p:111-119 DOI: 10.1016/j.rfe.2012.06.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1058330012000341
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. John B. Taylor, 1994. "The inflation/output variability trade-off revisited," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 21-24.
    2. Taylor, John B, 1993. "The Use of the New Macroeconometrics for Policy Formulation," American Economic Review, American Economic Association, pages 300-305.
    3. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, pages 232-237.
    4. Frank Smets, 2002. "Output gap uncertainty: Does it matter for the Taylor rule?," Empirical Economics, Springer, pages 113-129.
    5. Orphanides, Athanasios, 2003. "Historical monetary policy analysis and the Taylor rule," Journal of Monetary Economics, Elsevier, pages 983-1022.
    6. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, pages 195-214.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arayssi, Mahmoud, 2015. "Transparent rules for deposing central bankers," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 1-17.
    2. Putnam, Bluford H. & Azzarello, Samantha, 2015. "Evolving dynamics of the relationship between US core inflation and unemployment," Review of Financial Economics, Elsevier, pages 27-34.
    3. Putnam, Bluford H., 2013. "Essential concepts necessary to consider when evaluating the efficacy of quantitative easing," Review of Financial Economics, Elsevier, pages 1-7.

    More about this item

    Keywords

    Dual mandate; Federal Reserve; Bayesian inference; Inflation; Employment;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:revfin:v:21:y:2012:i:3:p:111-119. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/620170 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.