Shifts in US Federal Reserve Goals and Tactics for Monetary Policy: A Role for Penitence?
AbstractThis paper considers some of the large changes in the Federal Reserve's approach to monetary policy. It shows that, in some important cases, critics who were successful in arguing that past Fed approaches were responsible for mistakes that caused harm succeeded in making the Fed averse to these approaches. This can explain why the Fed stopped basing monetary policy on the quality of new bank loans, why it stopped being willing to cause recessions to deal with inflation, and why it was temporarily unwilling to maintain stable interest rates in the period 1979-1982. It can also contribute to explaining why monetary policy was tight during the Great Depression. The paper shows that the evolution of policy was much more gradual and flexible after the Volcker disinflation, when the Fed was not generally deemed to have made an error.
CitationRotemberg, Julio J. 2013. "Shifts in US Federal Reserve Goals and Tactics for Monetary Policy: A Role for Penitence?" Journal of Economic Perspectives, 27 (4): 65-86. DOI: 10.1257/jep.27.4.65
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- E58 Central Banks and Their Policies
- E65 Studies of Particular Policy Episodes