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Journal of Economic Perspectives: Vol. 27 No. 4 (Fall 2013)

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Does the Federal Reserve Care about the Rest of the World?

Article Citation

Eichengreen, Barry. 2013. "Does the Federal Reserve Care about the Rest of the World?" Journal of Economic Perspectives, 27(4): 87-104.

DOI: 10.1257/jep.27.4.87

Abstract

Many economists are accustomed to thinking about Federal Reserve policy in terms of the institution's "dual mandate," which refers to price stability and high employment, and in which the exchange rate and other international variables matter only insofar as they influence inflation and the output gap -- which is to say, not very much. In fact, this conventional view is heavily shaped by the distinctive and peculiar circumstances of the last three decades, when the influence of international considerations on Fed policy has been limited. In fact, the Federal Reserve paid significant attention to international considerations in its first two decades, followed by relative inattention to such factors in the two-plus decades that followed, then back to renewed attention to international aspects of monetary policy in the 1960s, before the recent period of benign neglect of the international dimension. I argue that in the next few decades, international aspects are likely to play a larger role in Federal Reserve policy making than at present.

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Authors

Eichengreen, Barry (U CA, Berkeley)

JEL Classifications

E23: Macroeconomics: Production
E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E31: Price Level; Inflation; Deflation
E52: Monetary Policy
E58: Central Banks and Their Policies
F42: International Policy Coordination and Transmission

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