Federal Reserve Policymaking Research Articles

Presidential Address: Does Monetary Policy Matter? The Narrative Approach after 35 Years

The narrative approach to macroeconomic identification uses qualitative sources, such as newspapers or government records, to provide information that can help establish causal relationships. This paper discusses the requirements for rigorous narrative analysis using fresh research on the impact of monetary policy as the focal application. We read the historical Minutes and Transcripts of Federal Reserve policymaking meetings to identify significant contractionary and expansionary changes in monetary policy not taken in response to current or prospective developments in real activity for the period 1946 to 2016. We find that such monetary shocks have large and significant effects on unemployment, output, and inflation in the expected directions. Analysis of available policy records suggests that a contractionary monetary shock likely occurred in 2022. Based on the empirical estimates of the effect of previous shocks, one would expect substantial negative impacts on real GDP and inflation in 2023 and 2024. (JEL E31, E52, E58, E65, N12)

Masters of Illusion: Bank and Regulatory Accounting for Losses in Distressed Banks

This essay is part of a larger work on the history of Federal Reserve policymaking entitled Banking on Bull. The study seeks to explain why the instruments of central banking inevitably break down over time. A big part of the explanation is that policymakers want accounting measures of bank net worth to be flexible enough to allow bankers and regulators to slow the release of adverse information about distressed banks, particularly very large ones. Modern regulatory frameworks focus on maintaining what can be described as the adequacy of accounting capital. But this framework is bull, because in tough times, bank accountants know how to make losses disappear.

A Century of US Central Banking: Goals, Frameworks, Accountability

Several key episodes in the 100-year history of the Federal Reserve have been referred to in various contexts with the adjective “Great” attached to them: the Great Experiment of the Federal Reserve's founding, the Great Depression, the Great Inflation and subsequent disinflation, the Great Moderation, and the recent Great Recession. Here, I'll use this sequence of “Great” episodes to discuss the evolution over the past 100 years of three key aspects of Federal Reserve policymaking: the goals of policy, the policy framework, and accountability and communication. The changes over time in these three areas provide a useful perspective, I believe, on how the role and functioning of the Federal Reserve have changed since its founding in 1913, as well as some lessons for the present and for the future.

Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems.

To discover who rules, follow the gold. This is the argument of this book, a history of modern American politics. Although the role big money plays in defining political outcomes has long been obvious to ordinary Americans, most pundits and scholars have virtually dismissed this assumption. Even in the light of sky-rocketing campaign costs, the belief that major financial interests primarily determine who parties nominate and where they stand on the issues - that, in effect, Democrats and Republicans are merely the left and wings of the Property Party - has been ignored by most political scientists. Offering evidence ranging from the 19th century to the 1994 mid-term elections, this book shows that voters are right on the money. Thomas Ferguson breaks completely with traditional voter-centred accounts of party politics. In its place he outlines an investment approach, in which powerful investors, not unorganized voters, dominate campaigns and elections. Because businesses invest in political parties and their candidates, changes in industrial structures - between large firms and sectors - can alter the agenda of party politics and the shape of public policy. This book presents revised versions of essays in which Ferguson advanced and tested his theory, including his study of the role played by capital intensive multinationals and international financiers in the New Deal. The chapter, Studies in Money Driven Politics, brings this aspect of American politics into better focus, along with other studies of Federal Reserve policy-making and campaign finance in the 1936 election. Ferguson analyzes how a changing world economy and other social developments broke up the New Deal system in our own time, through careful studies of the 1988 and 1992 elections. The essay on 1992 contains an extended analysis of the emergence of the Clinton coalition and Ross Perot's dramatic independent insurgency. A postscript on the 1994 elections demonstrates the controlling impact of money on several key campaigns.

The monetary economics of Lauchlin Currie

The theoretical and empirical monetary analysis of Lauchlin Currie, writing in the 1930s, is strikingly modern. I discuss his interpretation of Federal Reserve policymaking and his understanding of the money supply. His work is then related to Friedman and Schwartz in connection with Patinkin's conjecture that examples of Merton multiples in scientific discoveries are rare. Currie's money supply series and description of Federal Reserve policymaking, emphasizing its ‘real bills’ orientation, clearly anticipates later work. His money supply mechanism, however, is significantly different from Friedman and Schwartz's because he has a severe depression generating surplus, redundant bank reserves.

Federal reserve policymaking: an overview and analysis of the policy process

Federal reserve policymaking: an overview and analysis of the policy process

Federal reserve policymaking: An overview and analysis of the policy process a comment

Federal reserve policymaking: An overview and analysis of the policy process a comment

A case study of Federal Reserve policymaking: Regulation Q in 1966

This paper evaluates the Federal Reserve's efficiency by seeing if in 1966, when it decided to make the Regulation Q ceiling much more binding, it took account of the factors that economic theory suggests are relevant, such as the stimulus provided to non-price competition. The sources used are confidential Minutes of the Board of Governors and internal memos. They show that the Fed's analysis was seriously deficient. Some probable reasons are suggested.

THE MAKING OF MONETARY POLICY: DESCRIPTION AND ANALYSIS

At the present time Federal Reserve policy-making may be viewed as having a two-part structure. First, based on a four to eight quarter economic forecast, the Fed selects a target rate of money growth. Second, based on a short-term money market forecast, the Fed selects a Federal funds rate range thought to be consistent with the money growth target. The procedure followed in selecting the money growth target is “state-of-the-art” but the policy implementation based on controlling the Federal funds rate has permitted an undesirable pro-cyclical behavior of the money stock.

Federal Reserve Policy-Making.

Federal Reserve Policy-Making.

Has Bank Supervision Been in Conflict With Monetary Policy

IN a recent article in this REVIEW 2 Mr. Robert V. Rosa refers to discussions of relation of bank supervision to by E. A. Goldenweiser, G. L. Bach, and a Subcommittee of Joint Committee on Economic Report. supervision is one of intangibles of control that has attracted considerable attention. . . Although none of writers would appear to believe that supervision can practicably serve as an active arm of and credit policy, Bach does rightly stress great importance of preventing bank supervision from going counter to in periods. 3 Bank supervisory has probably accentuated deflationary tendencies at times; and at other times relaxation of supervisory standards has tended to remove restraints on bank credit expansion. However, assumption of Bach, which seems to be prevalent, that in critical periods influence of bank supervision was directly counter to policy needs mnore scrutiny than has been given to it. This article is an examination of this assurmption period of late I920'S and I930's.' XVhether bank supervisory has been in conflict with depends in part on meaning attached to term monetary poticy. If is defined as government and central bank actions designed to influence rates of interest, or certain specific rates such as Federal Reserve discount rates, it can of course be said that supervisory during at least a portion of I929-33 period was in conflict with monetary policy. However, such a narrow interpretation of misses heart of problem of relation of to business activity and degree of full employment. Manipulation of or pressure on interest rates is not only method, and past decades has not been principal method, of influencing quantity of money or circulating medium, of which by far greater part now consists of obligations of banks in form of deposits. Under fractional reserve system as it developed in United States in nineteenth century, banks tended to expand their earning assets and deposits to limit permitted by reserves, as defined by law, available to them. This practice continued after establishment of Federal Reserve System, and in fact still continues. That is to say, Federal Reserve member banks do not as a general practice maintain more (reserves in of those required by law) than are needed use as clearing balances at Federal Reserve banks. special circumstances of period from I934 to I942, when this practice was interrupted or only partially followed and excess reserves were abnormally large, are discussed below. On June 30, I 9I7, legal of banks which were members of Federal Reserve System were fully concentrated in Federal Reserve banks. Since that date of member banks have consisted solely of deposit balances in Federal Reserve banks. aggregate amount of these balances depends on volume of assets held by Federal Reserve banks in of other liabilities, including capital accounts, of Federal Reserve banks. Consequently, since I9I7 most important influence on money supply-and during most of period since that date dominant influence is volume of assets held by Federal Reserve banks. It is not an exaggeration to say that has consisted primarily of asset acquisition and relinauishment Dolicies of Federal Reserve f' e opinions expressed in this article represent personal views only. 2 Robert V. Rosa, The Revival of Monetary Policy, this REVIEW, XXXIII (February 1951), 29-37. 'Ibid., p. 35. 'In Federal Reserve Policy-Making (New York, I950), which is work of Professor Bach to which Mr. Rosa refers, specific mention is made of I929-I933 period (p. 251). Reference is also made to cognizance for at least last decade or two of the cross-implications of banksupervisory and policies (p. 250).

Federal Reserve Policy-making: A Study in Government Economic Policy Formation. G. L. Bach

<i>Federal Reserve Policy-making: A Study in Government Economic Policy Formation</i>. G. L. Bach

Federal Reserve Policy-Making: A Study in Government Economic Policy Formation

Federal Reserve Policy-Making: A Study in Government Economic Policy Formation