Working Paper

The formulation of monetary policy

Abstract: The purpose of this paper is to elucidate the way in which current institutional arrangements shape the character of monetary policy. It is emphasized that the Fed, in order to preserve its independence, formulates monetary policy in a way that prevents the formation of coalitions within the government that could threaten its independence. As a consequence, the Fed, in general, attempts to balance multiple, changing objectives. This attempt leads to the demand for \"flexibility,\" an absence of precommitment. Much of the paper is devoted to a discussion of the way in which the Fed's desire to avoid precommitment influences its use of analytical procedures for formulating policy and its use of money supply targets.

Keywords: Monetary policy - United States; Federal Reserve System;

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Working Paper

Publication Date: 1984

Number: 84-02