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Three Challenges to Central Bank Orthodoxy

Author

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  • James Bullard
  • Kevin L Kliesen

Abstract

Since 2007–09, the Federal Reserve has pursued a very aggressive monetary policy strategy. This strategy has been associated with healthy labor market conditions, moderate economic growth, and inflation—netting out the effects of a major oil price shock—that is close to the Federal Open Market Committee’s (FOMC’s) 2 percent target. Thus, with the economy returning to normal, it is natural for the FOMC to begin the process of exiting its highly accommodative policy. The FOMC has laid out several well-defined steps for this process. This strategy may be called central bank orthodoxy, since it is a natural extension of the classical view. However, three challenges to this orthodoxy have developed. Although each challenge is interesting and potentially helpful, the orthodox view provides a better basis for devising near- and medium-term monetary policy decisions.

Suggested Citation

  • James Bullard & Kevin L Kliesen, 2015. "Three Challenges to Central Bank Orthodoxy," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 50(4), pages 191-199, October.
    • Handle: RePEc:pal:buseco:v:50:y:2015:i:4:p:191-199
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    Cited by:

    1. Donayre, Luiggi & Panovska, Irina, 2018. "U.S. wage growth and nonlinearities: The roles of inflation and unemployment," Economic Modelling, Elsevier, vol. 68(C), pages 273-292.

    More about this item

    JEL classification:

    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • 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

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