Federal Reserve Independence: What Kind and How Much?

Abstract

In the United States, monetary functions were undertaken by the Treasury and by private organizations of banks before the establishment of the Federal Reserve, and some would argue with better results. There is no reason to believe that, under current conditions, a central bank, however desirable as an alternative, is necessary and, therefore, that an central bank is necessary. However, there is in the United States a central bank with some degree of independence that is not likely to disappear in the foreseeable future. The practical question is how much independence is desirable? A related consideration is, what kind? These questions involve political as well as economic factors that, in recent years, have generated a good deal of heat and some light. (For relatively recent compilations of relevant articles, see Mayer, 1990, and Van Hoose, 1995). International comparisons indicate that the Federal Reserve is a relatively independent central bank that has delivered anti-inflationary services (Alesina and Summers, 1993). Monetarists, however, have argued that Federal Reserve independence is an almost insurmountable barrier to effective monetary policy and have long proposed rules as a substitute for discretion. Keynesians and others, without a belief in a rigid linkage between money and aggregate economic activity, but with a concern about systemic processes and unpredictable events that connect the financial system to fluctuations in real output, have been less sanguine about tying the Federal Reserve's hands. The issue of independence has, consequently, fused with the economic

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 10 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.