scholarly journals Shifts in US Federal Reserve Goals and Tactics for Monetary Policy: A Role for Penitence?

2013 ◽  
Vol 27 (4) ◽  
pp. 65-86 ◽  
Author(s):  
Julio J Rotemberg
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Great Depression ◽  
Federal Reserve ◽  
Bank Loans ◽  
The Great Depression

This 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.

Back to Basics: Reserve Requirements and Money Stock Changes, 1929–1936

2000 ◽  
Vol 44 (1) ◽  
pp. 62-69 ◽  
Author(s):  
Robert F. Stauffer
Keyword(s):  
Monetary Policy ◽  
Great Depression ◽  
Federal Reserve ◽  
Money Stock ◽  
Reserve Requirement ◽  
Reserve Requirements ◽  
Money Multiplier ◽  
The Great Depression

This paper explains how the shift of deposits from nonmember banks and country banks to larger member banks increased the average or “effective” reserve requirement in the 1929–1936 period. The result was an inappropriate tightening of monetary conditions, along with liquidity problems for those banks most susceptible to failure. A basic money multiplier model is developed to help clarify the possible impact of increases in effective reserve requirements. The resulting perspective strengthens the usual charges against the Federal Reserve of monetary policy malfeasance during the Great Depression.

scholarly journals The Missing Transmission Mechanism in the Monetary Explanation of the Great Depression

2013 ◽  
Vol 103 (3) ◽  
pp. 66-72 ◽  
Author(s):  
Christina D Romer ◽  
David H Romer
Keyword(s):  
Interest Rates ◽  
Detailed Analysis ◽  
Great Depression ◽  
Federal Reserve ◽  
Transmission Mechanism ◽  
Monetary Shocks ◽  
Real Interest Rates ◽  
The Great Depression ◽  
Nominal Interest Rates ◽  
Business Week

This paper examines the missing transmission mechanism in Friedman's and Schwartz's monetary explanation of the Great Depression. We review the challenge provided by the decline in nominal interest rates in the early 1930s, and show that the monetary explanation requires not just that there were expectations of deflation, but that they were caused by monetary contraction. Using a detailed analysis of Business Week magazine, we find evidence that monetary contraction and Federal Reserve policy contributed to expectations of deflation during the downturn. This suggests that monetary shocks may have depressed spending and output in part by raising real interest rates.

scholarly journals Monetary Policy: From There to Here to Where?

2013 ◽  
pp. 1-6
Author(s):  
Mark Sniderman
Keyword(s):  
Economic Theory ◽  
Monetary Policy ◽  
Great Depression ◽  
Federal Reserve ◽  
Lessons Learned ◽  
The Past ◽  
The Great Depression ◽  
New Framework

Drawing from his long experience participating in the policymaking process at the Federal Reserve, chief policy officer Mark Sniderman shares his views on how the Federal Reserve's framework for conducting monetary policy has evolved over the past decade. He explains how changes in economic theory have helped shaped this new framework and how lessons learned from the Great Depression and Japan's recent struggle with deflation have contributed. This Commentary is based on a speech delivered at the Global Interdependence Conference, Tokyo, Japan, on December 4, 2012.

Monetary Politics: Origins of the Federal Reserve

2013 ◽  
Vol 27 (1) ◽  
pp. 1-13 ◽  
Author(s):  
Sarah Binder ◽  
Mark Spindel
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Great Depression ◽  
Federal Reserve ◽  
Hybrid Structure ◽  
The Great Depression ◽  
Reserve Bank ◽  
Political Interests ◽  
Reserve System ◽  
Selection Of

Nearly unique amongst the world's monetary bodies, the Federal Reserve defies description as a central bank. A century after its creation, the Fed retains a hybrid structure of a president-appointed, Senate-confirmed Washington board and twelve largely privately directed regional reserve banks—each of which remains moored in the cities originally selected in 1914. In this article we investigate the origins of the Federal Reserve System, focusing on the selection of the twelve reserve bank cities. In contrast to accounts that suggest politics played no role in the selection of the cities, we suggest that a range of political interests shaped Democrats' choices in designing the reserve system. The result was a decentralized institution that initially proved unable to coordinate monetary policy—a key contributor to the onset of the Great Depression less than two decades later.

READING KEYNES AT THE ZERO LOWER BOUND: THE GREAT DEPRESSION, THE LIQUIDITY TRAP, AND UNCONVENTIONAL POLICY

2018 ◽  
Vol 40 (3) ◽  
pp. 301-334 ◽  
Author(s):  
Richard Sutch
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Interest Rates ◽  
Great Depression ◽  
Zero Lower Bound ◽  
Liquidity Trap ◽  
The Great Depression ◽  
Nominal Interest Rates

John Maynard Keynes’s analysis of the Great Depression has strong parallels to recent theorizing about the post-2008 Great Recession. There are also remarkable similarities between the two historical episodes: the collapse of demand for new fixed investment, the role of the zero lower bound liquidity trap in hampering conventional monetary policy, the multi-year period of near-zero short-term rates, and the protracted period of subnormal prosperity. A major difference between then and now is that monetary authorities in the recent situation actively pursued an unconventional policy with massive purchases of long-term securities. Keynes couldn’t convince authorities of his era to pursue such a plan, but it was precisely the monetary policy he advocated for a depressed economy stuck at the zero lower bound of nominal interest rates.

scholarly journals Journal of the History of Economic Thought Preprints - READING KEYNES AT THE ZERO LOWER BOUND: THE GREAT DEPRESSION, THE LIQUIDITY TRAP, AND UNCONVENTIONAL POLICY

2018 ◽  
Author(s):  
Richard Sutch
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Interest Rates ◽  
Great Depression ◽  
Economic Thought ◽  
Zero Lower Bound ◽  
Liquidity Trap ◽  
The Great Depression ◽  
Nominal Interest Rates ◽  
History Of

John Maynard Keynes’s analysis of the Great Depression has strong parallels to recent theorizing about the post-2008 Great Recession. There are also remarkable similarities between the two historical episodes: the collapse of demand for new fixed investment, the role of the zero-lower-bound liquidity trap in hampering conventional monetary policy, the multi-year period of near-zero short-term rates, and the protracted period of subnormal prosperity. A major difference between then and now that monetary authorities in the recent situation actively pursued an unconventional policy with massive purchases of long-term securities. Keynes couldn’t convince authorities of his era to pursue such a plan, but it was precisely the monetary policy he advocated for a depressed economy stuck at the zero lower bound of nominal interest rates.

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