Whom can we trust to run the Fed? Theoretical support for the founders' views
The Federal Reserve Act erected a unique structure of government decisionmaking, independent with elaborate rules balancing internal power. Historical evidence suggests that this outcome was a response to public conflict over inflation's redistributive powers. This paper documents and formalizes this argument: in the face of conflict over redistributive inflation, policy by majority can lead to policy that is worse, even for the majority, than obvious alternatives. The bargaining solution of an independent board with properly balanced interests leads to a better outcome. Technically, this paper extends earlier work in making policy preferences fully endogenous and in extending the notion of equilibrium policy to such a world. Substantively, this work provides a simple grounding of policy preferences--largely missing heretofore--linking game theoretic models of policy to historical evidence about the formation of an independent monetary authority.
|Date of creation:||1992|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/ifdp/order.htm|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barro, Robert J & Gordon, David B, 1983.
"A Positive Theory of Monetary Policy in a Natural Rate Model,"
Journal of Political Economy,
University of Chicago Press, vol. 91(4), pages 589-610, August.
- Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
- Loewy, Michael B., 1988. "Equilibrium policy in an overlapping generations economy," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 485-499.
- Brendan O'Flaherty, 1990. "The Care And Handling Of Monetary Authorities," Economics and Politics, Wiley Blackwell, vol. 2(1), pages 25-44, 03.
- Kenneth Rogoff, 1986.
"Reputational Constraints on Monetary Policy,"
NBER Working Papers
1986, National Bureau of Economic Research, Inc.
- Rogoff, Kenneth, 1987. "Reputational constraints on monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 26(1), pages 141-181, January.
- Chari, V V & Kehoe, Patrick J, 1990.
Journal of Political Economy,
University of Chicago Press, vol. 98(4), pages 783-802, August.
- John Chant & Keith Acheson, 1972. "The choice of monetary instruments and the theory of bureaucracy," Public Choice, Springer, vol. 12(1), pages 13-33, March.
- Tabellini, Guido, 1988.
"Domestic Politics and the International Coordination of Fiscal Policies,"
CEPR Discussion Papers
226, C.E.P.R. Discussion Papers.
- Tabellini, Guido, 1990. "Domestic politics and the international coordination of fiscal policies," Journal of International Economics, Elsevier, vol. 28(3-4), pages 245-265, May.
- Guido Tabellini, 1988. "Domestic Politics and the International Coordination of Fiscal Policies," UCLA Economics Working Papers 529, UCLA Department of Economics.
- Sachs, Jeffrey & Alesina, Alberto, 1988. "Political Parties and the Business Cycle in the United States, 1948-1984," Scholarly Articles 4553026, Harvard University Department of Economics.
- Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March.
- Havrilesky, Thomas M, 1987. "A Partisanship Theory of Fiscal and Monetary Regimes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(3), pages 308-25, August.
- Ariel Rubinstein, 2010.
"Perfect Equilibrium in a Bargaining Model,"
Levine's Working Paper Archive
252, David K. Levine.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:429. 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: (Kris Vajs)
If references are entirely missing, you can add them using this form.