Working Paper: NBER ID: w20507
Authors: Julio J. Rotemberg
Abstract: This paper studies the persistence and some of the consequences of the eventual abandonment by the FOMC of the principles embedded in the Federal Reserve's Tenth Annual Report of 1923. The three principles I focus on are 1) the discouraging of speculative lending by commercial banks, 2) the desire to meet the credit needs of business and 3) the preference of a focus on credit over a focus on monetary aggregates. I show that the first two principles remained important in FOMC deliberations until the mid-1960's. After this, the FOMC also spent less time discussing the composition of bank loans.
Keywords: No keywords provided
JEL Codes: E42; E58; N1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Abandonment of the 1923 principles (F55) | Increase in speculative lending practices (F65) |
| Shift in focus from credit quality to monetary aggregates (E51) | Abandonment of the 1923 principles (F55) |
| Neglect of the composition of bank loans (G21) | Abandonment of the 1923 principles (F55) |
| Abandonment of the 1923 principles (F55) | Conditions leading to the financial crisis of 2007 (F65) |
| Influence of academic ideas and changing economic environment (B22) | Shift in focus from credit quality to monetary aggregates (E51) |