Working Paper: NBER ID: w19405
Authors: Barry Eichengreen
Abstract: Many economists are accustomed to thinking about Federal Reserve policy in terms of the institution's dual mandate, which refers to price stability and high employment, and in which the exchange rate and other international variables matter only insofar as they influence inflation and the output gap - which is to say, not very much. This conventional view is heavily shaped by the distinctive circumstances of the last three decades, when the influence of international considerations on Fed policy has been limited. I discuss how the Federal Reserve paid significant attention to international considerations in its first two decades, followed by relative inattention to such factors in the two-plus decades that followed, then back to renewed attention to international aspects of monetary policy in the 1960s, before the recent period of benign neglect of the international dimension. This longer perspective is a reminder that just because the Fed has not attached priority to international aspects of monetary policy in the recent past is no guarantee that it will not do so in the future.
Keywords: No keywords provided
JEL Codes: E4; N1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| International trade dynamics (F14) | Federal Reserve's monetary policy (E52) |
| Federal Reserve's early attention to international considerations (F33) | Federal Reserve's monetary policy (E52) |
| Shift in focus from international to domestic stability (F52) | Federal Reserve's neglect of international implications (F33) |
| Global financial crises (F65) | Federal Reserve's recognition of interconnectedness (F65) |
| Increasing global economic interdependence (F69) | Future role of international factors in Federal Reserve policy (F30) |
| Exchange rate fluctuations (F31) | Economic stability (E60) |