Federal Reserve Structure, Economic Ideas, and Monetary and Financial Policy

Bordo, Michael D.; Prescott, Edward Simpson

doi:10.3386/w26098

Cited by 3 publications

(3 citation statements)

References 40 publications

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“…Instead, the two stone statues on the building's westfacing entrance, Security and Integrity, seem more appropriate metaphors. 131 Bordo and Prescott (2019). 132 Humpage (2014).…”

Section: Epiloguementioning

confidence: 99%

On the Origins of the Federal Reserve System and Its Structure

Humpage

2023

Working Paper (Federal Reserve Bank of Cleveland)

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The creation of the Federal Reserve System ultimately stemmed from fundamental changes in the banking industry that heightened the risks associated with shifts in the public’s liquidity preferences and that created an atmosphere of distrust between the small, traditional, country banks and the large, transforming, Wall Street banks. The severity of the Panic of 1907 became the proximate factor in the Federal Reserve’s formation. The panic, which the New York Clearing House’s slow, discriminative, and insufficient response characterized, gave credence to concerns of growing financial risks and invigorated calls for reform. The Federal Reserve’s unique structure reflects compromises reached in attempts to dampen the risks in the banking industry while easing the distrust and fears of dominance among its various stakeholders.

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“…Instead, the two stone statues on the building's westfacing entrance, Security and Integrity, seem more appropriate metaphors. 131 Bordo and Prescott (2019). 132 Humpage (2014).…”

Section: Epiloguementioning

confidence: 99%

On the Origins of the Federal Reserve System and Its Structure

Humpage

2023

Working Paper (Federal Reserve Bank of Cleveland)

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“…This focus on monetary policy likely shifted leadership in top management at the Reserve Banks toward personnel trained as economists (Whittlesey (1963), p. 38). 18 Whittlesey writes:…”

Section: The 1950s and Early 1960smentioning

confidence: 99%

“…Whittlesey's observation can be seen during this time period in the leadership of the Federal Reserve Bank of Cleveland. President Fulton's background was in banking, but 18 Other than at the New York Fed, professionally trained economists had a much smaller role in Reserve Banks in the 1940s. In a study on research at the Reserve Banks, the agricultural economist T.W.…”

Section: The 1950s and Early 1960smentioning

confidence: 99%

Federal Reserve Structure and the Production of Monetary Policy Ideas

Bordo,

Prescott

2023

Working Paper (Federal Reserve Bank of Cleveland)

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We evaluate the decentralized structure of the Federal Reserve System as a mechanism for generating and processing new ideas on monetary policy over the 1960 - 2000 period. We document the introduction of monetarism, rational expectations, credibility, transparency, and other monetary policy ideas by Reserve Banks into the Federal Reserve System. We argue that the Reserve Banks were willing to support and develop new ideas due to internal reforms to the FOMC that Chairman William McChesney Martin implemented in the 1950s and the increased ties with academia that developed in this period. Furthermore, the Reserve Banks were able to succeed at this because of their private-public governance structure. We illustrate this with a time-consistency model in which a decentralized organization is better at producing new ideas than a centralized one. We argue that this role of the Reserve Banks is an important benefit of the Federal Reserve’s decentralized structure by allowing for more competition in formulating ideas and by reducing groupthink.

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Federal Reserve Structure and Economic Ideas

Bordo

Prescott

2022

Working Paper (Federal Reserve Bank of Cleveland)

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This essay was written in memory of Marvin Goodfriend for a Federal Reserve Bank of Richmond book called Essays in Honor of Marvin Goodfriend: Economist and Central Banker. We discuss his Carnegie-Rochester conference paper titled "The Role of a Regional Bank in a System of Central Banks." In that paper, Marvin argued that the Federal Reserve's decentralized structure allowed for competing ideas about monetary and banking policy to develop with the central bank. In our essay, we describe how Marvin demonstrated this argument during his long career at the Federal Reserve Bank of Richmond. We also describe the institutional developments that led to this competition, including reforms that Chairman William McChesney Martin made to the operation of the Federal Open Market Committee in the 1950s and the introduction of monetary policy ideas such as monetarism and rational expectations by the Reserve Banks.

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Federal Reserve Structure, Economic Ideas, and Monetary and Financial Policy

Cited by 3 publications

References 40 publications

On the Origins of the Federal Reserve System and Its Structure

On the Origins of the Federal Reserve System and Its Structure

Federal Reserve Structure and the Production of Monetary Policy Ideas

Federal Reserve Structure and Economic Ideas

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