Monetary Policy on the 75th Aniversary of the Federal Reserve System.

• Author: Quddus, Munir

This book contains an array of theoretical and empirical articles evaluating the historical role of the Federal Reserve System. The papers were all presented in a conference organized by the research and public information department of the St. Louis Fed held in 1989 on the occasion of the 75th anniversary of the founding of the Federal Reserve System. The invited authors include academics from the Monetary, Keynesian and the New Classical camp as well as central bankers. This book will serve as a useful reference for the students of monetary and macroeconomics, policy makers, politicians and the ordinary citizen. With a few exceptions the articles are readable, of good quality, and deal with monetary issues that are likely to remain important for research and public policy in the 1990s. The book however fails to provide any unified view of what ought to be the role of the Fed in the future.

There are three sections in the book each containing the invited papers and the comments in each of the three sessions held. In an eight page preface, the editor has donc a good job of summarizing the main issues raised and debated in the conference. However, he has not tried to address the fundamental question: Did the Fed contribute positively to the wealth and welfare of the U.S. economy?

In the first session, Allan Meltzer reviews 75 years of monetary policy making by the Fed with the primary focus on the period since the early 1960s. His conclusions, known to the students of monetary policy as the "monetarist critique," unequivocally suggest that the Fed has mostly looked at the wrong variables resulting in a record of bad policies. Meltzer presents evidence that the growth rate of money has been higher in each recent business cycle expansion than in the expansion immediately before. This procyclical pattern in monetary growth has contributed to the underlying inflation without the benefit of greater economic stability. Unless fundamental changes are made and the Fed held directly accountable for its actions, Meltzer is pessimistic about the future performance of the Fed.

In comments supportive of Meltzer's conclusions, Jeffrey Miron reports that his examination of data since 1870 reveals that the output growth in the post war era has been nearly a full percentage point lower compared to the 1870-1913 period, and the inflation rate of 4.7% since 1947 contrasts unfavorably with the slight decline in the price level during 1870-1913. K. Alec Chrystal...