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The Greenspan Era: Discretion, Rather Than Rules

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  • Benjamin M. Friedman

Abstract

What stands out in retrospect about U.S. monetary policy during the Greenspan Era is the ongoing movement away from mechanistic restrictions on the conduct of policy, together with a willingness on occasion to depart even from what more flexible guidelines dictated by contemporary conventional wisdom would imply, in the interest of carrying out the Federal Reserve System%u2019s dual mandate to pursue both stable prices and maximum employment. Part of this change was procedural %u2013 for example, the elimination of money growth targets. The most substantive demonstration of policy flexibility came in the latter half of the 1990s, as unemployment fell below 6% (in 1994), then below 5% (in 1997), and then remained below 5% for more than four years, yet the Federal Reserve did not tighten monetary policy. This policy stance was consistent with a view of the economy, including faster productivity growth and increased exposure to international competition, that Chairman Greenspan had articulated nearly a decade before.

Suggested Citation

  • Benjamin M. Friedman, 2006. "The Greenspan Era: Discretion, Rather Than Rules," NBER Working Papers 12118, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12118
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    Cited by:

    1. Romaniuk, Katarzyna & Vranceanu, Radu, 2008. "Asset Prices and Assymetries in the Fed's Interest Rate Rule : a Financial Approach," ESSEC Working Papers DR 08006, ESSEC Research Center, ESSEC Business School.
    2. Marika Karanassou & Hector Sala & Dennis J. Snower, 2008. "The Evolution Of Inflation And Unemployment: Explaining The Roaring Nineties," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 334-354, December.
    3. P Arestis & A Mihailov, 2009. "Flexible Rules cum Constrained Discretion: A New Consensus in Monetary Policy," Economic Issues Journal Articles, Economic Issues, vol. 14(2), pages 27-54, September.
    4. Cinzia Alcidi & Alessandro Flamini & Andrea Fracasso, 2011. "Policy Regime Changes, Judgment and Taylor rules in the Greenspan Era," Economica, London School of Economics and Political Science, vol. 78(309), pages 89-107, January.
    5. George C. Bitros, 2015. "Thinking Ahead of the Next Big Crash," Cato Journal, Cato Journal, Cato Institute, vol. 35(1), pages 67-93, Winter.
    6. Banerjee, A. & Malik, S., 2012. "The changing role of expectations in US monetary policy: A new look using the Livingston Survey," Working papers 376, Banque de France.
    7. repec:spr:empeco:v:54:y:2018:i:2:d:10.1007_s00181-016-1225-y is not listed on IDEAS
    8. Brian Snowdon, 2007. "The New Classical Counter-Revolution: False Path or Illuminating Complement?," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 541-562, Fall.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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