Working Paper: NBER ID: w18888
Authors: Carmen M. Reinhart; Kenneth S. Rogoff
Abstract: The mandate of the Federal Reserve has evolved considerably over its hundred-year history. From an initial focus in 1913 on financial stability, to fiscal financing in World War II and its aftermath, to a strong anti-inflation focus from the late 1970s, and then back to greater emphasis on financial stability since the Great Contraction. Yet, as the Fed's mandate has expanded in recent years, its range of instruments has narrowed, partly based on a misguided belief in the inherent stability of financial markets. We briefly discuss the active use in an earlier era of multiple instruments, including reserve requirements, credit controls and interest rate ceilings.
Keywords: Federal Reserve; monetary policy; financial stability; inflation; credit controls
JEL Codes: E02; E5; N1; N12; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| External pressures (e.g., war) (H56) | Shift in Federal Reserve's priorities (E52) |
| Inflationary pressures (E31) | Shift towards anti-inflation focus (E31) |
| Reduction in policy tools (e.g., credit controls) (E52) | Increased vulnerability in financial markets (F65) |
| Credit dynamics (G21) | Understanding of monetary policy outcomes (E60) |