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National monetary policy by regional design: the evolving role of the Federal Reserve banks in Federal Reserve System policy

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Abstract

This paper examines the history of Federal Reserve Bank input into Federal Reserve System monetary policymaking. From the Fed's founding in 1914 through the Great Depression, the Reserve Banks held the balance of power. Dissatisfaction with the Fed's performance, however, led to a wholesale reorganization in 1935 that greatly enhanced the authority of the Federal Reserve Board, but retained a role for the Federal Banks through the membership of their presidents on the FOMC, as well as in setting the discount rate. I argue that the Fed's decentralized structure was not the principal cause of Fed errors during the Great Depression. In addition, by retaining a role for the Federal Reserve Banks, the Fed's present structure provides the System with a measure of political independence and encourages a competition of ideas within the System that enhances the quality of policymaking.

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  • David C. Wheelock, 1999. "National monetary policy by regional design: the evolving role of the Federal Reserve banks in Federal Reserve System policy," Working Papers 1998-010, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:1998-010
    DOI: 10.20955/wp.1998.010
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    References listed on IDEAS

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    1. Richard G. Anderson & Kenneth A. Kavajecz, 1994. "A historical perspective on the Federal Reserve's monetary aggregates: definition, construction and targeting," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 1-31.
    2. Dewald, William G, 1972. "The National Monetary Commission: A Look Back," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 4(4), pages 930-956, November.
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    4. Gorton, Gary, 1985. "Clearinghouses and the Origin of Central Banking in the United States," The Journal of Economic History, Cambridge University Press, vol. 45(2), pages 277-283, June.
    5. Leonall C. Andersen & Keith M. Carlson, 1986. "A monetarist model for economic stabilization," Review, Federal Reserve Bank of St. Louis, issue Oct, pages 45-66.
    6. J. Bradford DeLong & Lawrence H. Summers, 1992. "Macroeconomic policy and long-run growth," Economic Review, Federal Reserve Bank of Kansas City, vol. 77(Q IV), pages 5-29.
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    2. Qing Ma & Susheng Wang, 2022. "Boundary of the firm with endogenous firm structure," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(4), pages 797-816, December.
    3. Owen F. Humpage, 2023. "On the Origins of the Federal Reserve System and Its Structure," Working Papers 23-17, Federal Reserve Bank of Cleveland.

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