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

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  • Willem Thorbecke

    (Department of Economics, George Mason University
    Jerome Levy Economics Institute)

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.

Suggested Citation

  • Willem Thorbecke, 2002. "A Dual Mandate for the Federal Reserve: The Pursuit of Price Stability and Full Employment," Eastern Economic Journal, Eastern Economic Association, vol. 28(2), pages 255-268, Spring.
  • Handle: RePEc:eej:eeconj:v:28:y:2002:i:2:p:255-268
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    References listed on IDEAS

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    Cited by:

    1. Joreg Bibow, 2005. "Refocusing the ECB on Output Stabilization and Growth through Inflation Targeting?," Macroeconomics 0507017, University Library of Munich, Germany.
    2. Frederik Kunze & Mario Gruppe, 2014. "Performance of Survey Forecasts by Professional Analysts: Did the European Debt Crisis Make it Harder or Perhaps Even Easier?," Social Sciences, MDPI, vol. 3(1), pages 1-12, February.

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    More about this item

    Keywords

    Employment; Full Employment; Inflation; Monetary Policy; Monetary; Policy; Prices; Unemployment;
    All these keywords.

    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; Treasury Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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