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Fed’s Dual Mandate: Maximum Employment and Price Stability

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  • Ioannis N. Kallianiotis

Abstract

In this paper, we look at the dual mandate (price stability and maximum employment) as policy objectives of the central bank (the Fed) and we test mostly the effectiveness of policy instruments on these two ultimate objectives. We start from 1978 to 2008 and then, from 2009 (the year of major changes in monetary policy) to present to measure statistically the capability of the Fed to improve the economy’s cycle and citizens’ wellbeing. OLS and VAR models and at the end some measurements of correlations and causality are used to determine the effectiveness of the policy tools on the two objective variables, price and unemployment. The empirical results show that prices have been drastically affected (inflation and bubbles) by this expansionary monetary policy for so many years, but employment has not been improved. In general, our public policies have generated a social cost that exceeds the social benefits. JEL classification numbers: E52, E58, E4, E44, C52, D6.

Suggested Citation

  • Ioannis N. Kallianiotis, 2024. "Fed’s Dual Mandate: Maximum Employment and Price Stability," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(3), pages 1-3.
    • Handle: RePEc:spt:apfiba:v:14:y:2024:i:3:f:14_3_3
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    References listed on IDEAS

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    1. Buiter, Willem, 2014. "Central Banks: Powerful, Political and Unaccountable?," MPRA Paper 59477, University Library of Munich, Germany.
    2. Dr. Ioannis N. Kallianiotis, 2020. "Can Monetary Policy Prevent Financial Crises?," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 6(4), pages 51-75, 04-2020.
    3. Scott A. Wolla, 2019. "A New Frontier: Monetary Policy with Ample Reserves," Page One Economics Newsletter, Federal Reserve Bank of St. Louis, pages 1-7, May.
    4. Ioannis N. Kallianiotis, 2021. "Monetary Policy Rules vs Discretion: Social Cost and Benefits," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 11(5), pages 1-6.
    5. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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    Keywords

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    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
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D6 - Microeconomics - - Welfare Economics

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