Back to the roots: On the origins of the Fed's independence

Farvaque, Etienne (2010): Back to the roots: On the origins of the Fed's independence. Unpublished.

Abstract

This note considers the foundations of the Federal Reserve Board's independence. Its origins are shown to reside in the American political philosophy, under which independence is an essential working condition for a perennial democracy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Federal Reserve Board, independence, constitution.
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; N - Economic History > N2 - Financial Markets and Institutions > N20 - General, International, or Comparative

References

Ackerman B., 1991, We the People, foundations, Harvard University Press.

Alesina A., Gatti R., 1995, "Independent central banks: low inflation at no costs? ", American Economic Review, vol.85, n°2, 196-200

Alesina A., Summers L., 1993, "Central bank independence and macroeconomic performance: some comparative evidence", Journal of Money, Credit and Banking, vol.25, n°2, 151-162

Barro R., Gordon D., 1983a, "Rules, discretion and reputation in a model of monetary policy", Journal of Monetary Economics, vol.12, n°1, 101-121

Barro R., Gordon D., 1983b, "A positive theory of monetary policy in a natural rate model", Journal of Political Economy, vol.91, n°4, 589-610

Becker G., 1983, "A Theory of Competition Among Pressure Groups for Political Influence", Quarterly Journal of Economics, vol.98, n°3, 371-400

Blake A., Weale M., 1998, "Costs of separating budgetary policy from control of inflation : a neglected aspect of central bank independence", Oxford Economic Papers, vol.50, n°3, 449-467

Blinder A., 1996, "Central Banking in a Democracy", Federal Reserve Bank of Richmond, Economic Quarterly, vol.82, n°4, 1-14

Brumm H. J., 2000, "Inflation and central bank independence : conventional wisdom redux", Journal of Money, Credit and Banking, vol.32, n°4, Part 1, 807-819

Brumm H. J., 2006, "The effect of central bank independence on inflation in developing countries", Economics Letters, vol. 90, 189-193

Coleman W., 2001, "Is it possible that an independent central bank is impossible ? The case of the Australian Notes Issue Board, 1920-1924", Journal of Money, Credit and Banking, vol. 33, n° 3, 729-748

Crowe Ch., Meade E., 2007, "The evolution of central bank governance around the world", Journal of Economic Perspectives, vol. 21, n° 4, 69-90

Cukierman A., Webb S., Neyapti B., 1992, "Measuring the independence of central banks and its effect on policy outcomes", The World Bank Economic Review, vol.6, n°3, 353-398

Daunfeldt S.-V., de Luna X., 2008, "Central bank independence and price stability: evidence from OECD countries", Oxford Economic Papers, vol. 60, 410-422

di Bartolomeo G., Pauwels W., 2006, “The Issue of Instability in a Simple Policy Game between the Central Bank and a Representative Union,” Public Choice, vol. 126, n° 3/4, 275-296

Drazen A., 2000, Political Economy in Macroeconomics, Princeton University Press

Eichengreen B., 1992, "Designing a Central Bank for Europe : a cautionary tale from the early years of the Federal Reserve System", in M. Canzoneri, V. Grilli, P. Masson editors, Establishing a Central Bank : issues in Europe and lessons from the US, Cambridge University Press

Elster J., 1991, “Arguing and Bargaining in the Federal Convention and the Assemblée Constituante”, Working Paper, n°4, Center for the Study of Constitutionalism in Eastern Europe, University of Chicago

Elster J., 1993, Political Psychology, Cambridge University Press.

Farvaque E., 2002, "Political Determinants of Central Bank Independence", Economics Letters, vol. 77, n° 1, 131-135

Farvaque E., Héricourt J., Lagadec G., forthcoming, "Central bank independence and ageing", Applied Economics Letters, forthcoming

Faust J., 1996, "Whom can we trust to run the Fed ? Theoretical support for the founder's views", Journal of Monetary Economics, vol.37, n°2, 267-283

Federal Reserve Board, 1915, "Exhibit D. Status of Federal Reserve Board. Opinion of T. W. Gregory, Attorney General", First Annual Report, Government Printing Office, 54-57

Forder J., 2003, " 'Independence' and the founding of the Fed", Scottish Journal of Political Economy, vol. 50, n° 3, 297-310

Forder J., 2005, "Why is central bank independence so widely approved ?", Journal of Economic Issues, vol. 39, n° 4, 843-865

Friedman M., 1992, Money Mischief, Harcourt Brace Jovanovich.

Gorton G., 1999, "Pricing free bank notes", Journal of Monetary Economics, vol.44, 33-64

Grilli V., Masciandoro D., Tabellini G., 1991, "Political and monetary institutions and public financial policies in the industrial democracies", Economic Policy, n°13, 342-392

Grossman G. M., Helpman E., 2001, Special interest politics, The MIT Press.

Hayo B., 1998, "Inflation culture, central bank independence and price stability", European Journal of Political Economy, vol.14, 241-263

Hetzel R., 1997, "The Case for a Monetary Rule in a Constitutional Democracy", Federal Reserve Bank of Richmond, Economic Quarterly, vol.83, n°2, 45-65

Howells P., 2009, "Independent central banks: some theoretical and empirical problems?", UWE Bristol, Bristol Business School, Center for Global Finance, Working Paper

Jeong G.-H., Miller G. J., Sobel A. C., 2009, "Political compromise and bureaucratic structure: the political origins of the Federal Reserve", Journal of Law, Economics and Organization, vol. 25, n° 2, 472-498

Kydland F., Prescott E., 1977, "Rules rather than discretion: the inconsistency of optimal plans", Journal of Political Economy, vol.85, n°3, 473-491

Mansfield H.C. Jr, 1989, Taming the Prince, the ambivalence of modern executive power, The Free Press.

McCallum B., 1995, "Two fallacies concerning central-bank independence", American Economic Review, vol.85, n°2, 207-211

McNamara K. R., 2002, "Rational fictions: central bank independence and the social logic of delegation", West European Politics, vol. 25, n° 1, 47-76

Meltzer A. H., 2004, A History of the Federal Reserve, Volume 1: 1913-1951, University of Chicago Press.

Miron J., 1989, "The founding of the Fed and the destabilization of the post-1914 US economy", in M. De Cecco and A. Giovannini editors, A European Central Bank ? Perspectives on monetary unification after ten years of the EMS, CEPR, Cambridge University Press, 290-336

Moser P., 1999, "Checks and balances, and the supply of central bank independence", European Economic Review, vol.43, n°8, 1569-1593

Olson M., 1966, The Logic of Collective Action, Harvard University Press.

Pocock J.G.A., 1975, The Machiavellian moment, florentine political thought and the Atlantic Republican tradition, Princeton University Press.

Posen, A., 1993, “Why central bank independence does not cause low inflation: there is no institutional fix for politics”, in Brien, R. (ed.), Finance in the International Economy: The Amex Bank Review prize essay in Memory of Richard Marjolin, Oxford University Press, 41-54

Reagan M. D., 1961, "The political structure of the Federal Reserve System", American Political Science Review, vol. LV, n° 1, 64-76

Rogoff K., 1985b, "The optimal degree of commitment to an intermediate monetary target", Quarterly Journal of Economics, vol.C, n°4, 1169-1190

Strotz R., 1955, "Myopia and inconsistency in dynamic utility maximisation", Review of Economic Studies, vol.23, 165-180

Timberlake R. H., 1993, Monetary Policy in the United States: An Intellectual and Institutional History, University of Chicago Press.