Working Paper

The Federal Reserve in a globalized world economy

Abstract: This paper starts from the theoretical observation that simple rules-based monetary policy will result in good economic performance in a globalized world economy and the historical observation that this occurred during the Great Moderation period of the 1980s and 1990s. It tries to answer a question posed by Paul Volcker in 2014 about the global repercussions of monetary policies pursued by advanced economy central banks in recent years. I start by explaining the basic theoretical framework, its policy implications, and its historical relevance. I then review the empirical evidence on the size of the international spillovers caused by deviations from rules-based monetary policy, and explore the many ways in which these spillovers affect and interfere with policy decisions globally. Finally, I consider ways in which individual monetary authorities and the world monetary system as a whole could adhere better to rules-based policies in the future and whether this would be enough to achieve the goal of stability in the globalized world economy.

JEL Classification: E5; F4; F5;

https://doi.org/10.24149/gwp200

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2014-10-01

Number: 200

Note: Published as: Taylor, John B. (2016), "The Federal Reserve in a Globalized World Economy," in The Federal Reserve's Role in the Global Economy: A Historical Perspective, ed. Michael D. Bordo and Mark A. Wynne (New York, NY: Cambridge University Press), 195-217.