A Century of Federal Reserve Monetary Policy: Issues and Implications for the Future.

• Author: Ireland, Peter N.

A Century of Federal Reserve Monetary Policy: Issues and Implications for the Future

Thomas B. Saving

Hackensack, N.J.: World Scientific, 2019, 294 pp.

To students of monetary theory and policy, especially those working in the monetarist tradition, Thomas Saving stands as one of the all-time greats. His important scholarly contributions include, but are by no means limited to, his 1967 Journal of Political Economy article on "Monetary Policy Targets and Indicators" and his 1971 American Economic Review paper on "Transactions Costs and the Demand for Money." The latter piece, in particular, introduces an optimizing theory oi consumer behavior that has been used by various economists many times since to study issues relating to the demand for money and the welfare cost of inflation.

Most famous of all, however, is Saving's 1967 monograph, coauthored with Boris Pesek and titled Money, Wealth, and Economic Theory. That volume presents a detailed analysis of wealth effects in macroeconomic theory, including their role in pulling the economy out of a long-run Keynesian equilibrium with less than full employment, ruling out the possibility of what today is called "secular stagnation." The 1967 volume also contains a comprehensive discussion, spanning several chapters, of the role that wealth effects play in transmitting monetary policy actions, first to real variables such as output and employment and then to the aggregate nominal price level. The book's initial impact can be appreciated by observing that it was reviewed by John Hicks in the Economic Journal and discussed at length by Milton Friedman and Anna Schwartz in the lead article of the very first issue of the Journal of Money, Credit, and Banking. Even today, more than half a century after its publication, it appears as a tour de force.

Unlike his early work, Saving's latest book, A Century of Federal Reserve Monetary Policy, eschews sophisticated mathematical modeling, presenting its arguments verbally and supporting them with data presented in tables and graphs. This approach expands the new book's audience to include college students and other nonspecialists with an interest in learning more about how monetary policy works. Nevertheless, more experienced readers will greatly appreciate the book as well, as it applies the powerful ideas originally presented by Pesek and Saving to the problems and challenges faced by the Federal Reserve today. The new book illustrates how, like all successful theories, Pesek and Saving's monetarist framework gains strength from its ability to help us understand events that occur out of sample, that is, outside the realm of the experiences that motivated its design in the first place.

Saving's book is divided into two parts. Part one, "A...