By David E. Lindsey
A narrative historical past by way of a Fed insider of the way financial coverage is formed within the US, with exact emphasis at the performances of former Chairman Ben Bernanke and present Chairwoman Janet Yellen in dealing with the prelude, outbreak, and aftermath of the 2008 monetary crisis.
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Additional info for A Century of Monetary Policy at the Fed: Ben Bernanke, Janet Yellen, and the Financial Crisis of 2008
He always believed that, if anything, high inflation over time caused higher unemployment. He had been the president of the New York Stock Exchange and chairman of the Export-Import Bank before his tour of duty with the Treasury Department, where he was its main negotiator in the talks leading up to the accord. ”14 He abjured economic analysis, instead soliciting anecdotal evidence and coining colorful metaphors. ”16 Under his chairmanship, FOMC meetings were marked by a short-term focus and the absence of a specific analytic framework.
But he asserted that the Fed ignored this crucial distinction by using the level of borrowed reserves to gauge the stance, and the associated thrust, of monetary policy. Over nearly the first year of the downturn after the August 1929 peak in economic activity, the Fed followed the Burgess-Riefler doctrine in pursuing the lower borrowing all right that contributed to the decline in market interest rates, but it did not do so aggressively enough to keep high-powered money—which Meltzer calls the monetary base—from declining.
Similarly, open market purchases of securities that inject reserves would induce banks to repay their Fed borrowings. Open market operations gained ascendancy as a policy instrument compared with the discount rate, which no longer was seen as having to be set at a penalty. Meltzer correctly emphasized that interest rates when adjusted for expected inflation, or real interest rates, are much more influential in effecting the borrowing and spending of the public than the nominal rates observed in financial markets.
A Century of Monetary Policy at the Fed: Ben Bernanke, Janet Yellen, and the Financial Crisis of 2008 by David E. Lindsey