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Working Paper
Federal Reserve Policy and Bretton Woods
During the Bretton Woods era, balance-of-payments developments, gold losses, and exchange rate concerns had little influence on Federal Reserve monetary policy, even after 1958 when such issues became critical. The Federal Reserve could largely disregard international considerations because the U.S. Treasury instituted a number of stop-gap devices?the gold pool, the general agreement to borrow, capital restraints, sterilized foreign-exchange operations?to shore up the dollar and Bretton Woods. These, however, gave Federal Reserve policymakers the latitude to focus on domestic objectives and ...
Working Paper
Independent within—not of—Government: The Emergence of the Federal Reserve as a Modern Central Bank
Independence is the hallmark of modern central banks, but independence is a mutable and fragile concept, because the governments to whom central banks are ultimately responsible can have objectives that take precedence over price stability. This paper traces the Federal Reserve?s emergence as a modern central bank beginning with its abandonment of monetary policy for debt-management operations during the Second World War and through the controversies that led to the Treasury-Federal Reserve accord in 1951. The accord, however, did not end the Federal Reserve?s search for independence. After ...
Working Paper
Even Keel and the Great Inflation
Using IV-GMM techniques and real-time data, we estimate a forward looking, Taylor-type reaction function incorporating dummy variables for even-keel operations and a variable for foreign official pressures on the U.S. gold stock during the Great Inflation. We show that when the Federal Reserve undertook even-keel operations to assist U.S. Treasury security sales, the FOMC tended to delay monetary-policy adjustments and to inject small amounts of reserves into the banking system. The operations, however, did not contribute significantly to the Great Inflation, because they occurred during ...
Working Paper
Even Keel and the Great Inflation
During the early part of the Great Inflation (1965-1975), the Federal Reserve undertook even-keel operations to assist the US Treasury’s coupon security sales. Accordingly, the central bank delayed any tightening of monetary policy and permanently injected reserves into the banking system. Using real-time Taylor-type and McCallum-like reaction functions, we show that the Fed routinely undertook these operations only when it was otherwise tightening monetary policy. Using a quantity-equation framework, we show that the Federal Reserve’s even-keel actions added approximately one percentage ...
Working Paper
Federal Reserve policy and Bretton Woods
During the Bretton Woods era, balance-of-payments developments, gold losses, and exchange-rate concerns had little influence on Federal Reserve monetary policy, even after 1958 when such issues became critical. The Federal Reserve could largely disregard international considerations because the U.S. Treasury instituted a number of stopgap devices?the gold pool, the general agreement to borrow, capital restraints, sterilized foreign-exchange operations?to shore up the dollar and Bretton Woods. These, however, gave Federal Reserve policymakers the latitude to focus on the domestic objectives ...
Working Paper
The Second Era of Globalization is Not Yet Over:An Historical Perspective
The recent rise of populist anti-globalization political movements has led to concerns that the current wave of globalization that goes back to the 1870s may end in turmoil just like the first wave which ended after World War I. It is too soon to tell. The decline and then levelling off of trade and capital flows in recent years reflects the drastic decline in global real income during the Great Recession. Other factors at work include the slowdown in the growth rate of China and the reversal of the extended international supply chains developed in the 1990s, as well as increased financial ...
Working Paper
The Problem of Quality Change in Historical Price Statistics: An Illustrative Example Using Baedeker Travel Guides
The problem of accurately measuring inflation in the face of constant improvement in the quality of goods is a long-standing one in economics. This paper uses a novel dataset on the prices of the travel guidebooks published by the German publishing house Baedeker between 1832 and 1944 to construct a hedonic price index for guidebooks. Comparing these indexes to the list prices of these guidebooks, we show that the failure to adjust for improvements in the quality of the guidebooks over time imparts a substantial upward bias to measured inflation. For example, for German-language guidebooks, ...
Working Paper
Current Federal Reserve Policy Under the Lens of Economic History: A Review Essay
This review essay is intended as a critical review of Humpage (2015), and it expands on the issues raised in that volume. Federal Reserve Policy during the financial crisis, and in its aftermath are addressed, along with the relationship to historical experience in the U.S. and elsewhere in the world.
Working Paper
A Comparison of Fed "Tightening" Episodes since the 1980s
This article examines how the real economy and inflation and inflation expectations evolved in response to the six tightening episodes enacted by the FOMC since 1983. The findings indicate that the sixth episode (2015-2018) differed in several key dimensions compared with the previous five episodes. In the first five episodes, the data show the FOMC was generally tightening into a strengthening economy with building price pressures. In contrast, in the final episode the FOMC began its tightening regime during a deceleration in economic activity ...
Working Paper
A Comparison of Fed "Tightening" Episodes since the 1980s
Deciding to undertake a series of tightening actions present unique challenges for Federal Reserve policymakers. These challenges are both political and economic. Using a variety of economic and financial market metrics, this article examines how the economy and financial markets evolved in response to the five tightening episodes enacted by the FOMC since 1983. The primary aim is to compare the most-recent episode, from December 2015 to December 2018, with the previous four episodes. The findings in this article indicate that the current episode bears some resemblance to previous Fed ...