Could the United States Have had a Better Central Bank? : An Historical Counterfactual Speculation

Thursday, December 1, 2011

Economics Working Paper WP11112

The Federal Reserve’s Centenary will be in 2014.It is time to reflect on how the institution has done in its first 100 years—on its successes and failures. Much has been written on the history of the Federal Reserve. The key books are by Milton Friedman and Anna Schwartz in the A Monetary History of the United States 1867 to 1960 and Allan Meltzer A History of the Federal Reserve( 2003) and (2010) and two recent books are also important : John Wood . A History of Central Banking in Great Britain and the United States ( 2005) and Robert Hetzel The Monetary Policy of the Federal Reserve: A History ( 2008). The general thrust of the evaluation of the Fed’s performance is that it did well in the 1920s, the 1950s, and from the mid 1980s to 2006( The Great Moderation) but that it performed badly in the Great Depression of the 1930s and the Great Inflation from 1965 to 1980. Many also have criticized the Fed for its performance during the recent financial crisis and Great Recession ( eg Meltzer 2010, Taylor 2009 and Hetzel 2012) but it will take more time to conclude that this experience should be ranked as badly as the Great Depression and Great Inflation.

Could the United States Have had a Better Central Bank?