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The Psychopathology Of Monetary Policy

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  • THOMAS HAVRILESKY

Abstract

This paper develops some implications of assigning the Federal Reserve the contradictory goals of keeping interest and unemployment rates from rising while at the same time expecting the Fed to control inflation. The resulting imbalance causes Fed officials to engage in the classical psychological defenses of denial, projection, and obfuscation. Prolonged defense of an unbalanced state may lead to protective postures with dysfunctional implications. Federal Reserve secrecy, self‐censorship, illusions of unanimity, and perceptions of need for insulation from external threat all are protective postures that may cause the Fed to lose credibility and alienate its professional staff. This, in turn, may promote the cause of monetary reform. This paper distinguishes between radical and piecemeal monetary reform and indicates why the latter could succeed in garnering political support.

Suggested Citation

  • Thomas Havrilesky, 1991. "The Psychopathology Of Monetary Policy," Contemporary Economic Policy, Western Economic Association International, vol. 9(3), pages 71-75, July.
    • Handle: RePEc:bla:coecpo:v:9:y:1991:i:3:p:71-75
    DOI: 10.1111/j.1465-7287.1991.tb00342.x
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    References listed on IDEAS

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    1. Goodfriend, Marvin, 1986. "Monetary mystique: Secrecy and central banking," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 63-92, January.
    2. Robert D. Auerbach, 1991. "Institutional Preservation At The Federal Reserve," Contemporary Economic Policy, Western Economic Association International, vol. 9(3), pages 46-58, July.
    3. Havrilesky, Thomas, 1972. "A New Program for More Monetary Stability," Journal of Political Economy, University of Chicago Press, vol. 80(1), pages 171-175, Jan.-Feb..
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    Cited by:

    1. Bernard Shull, 2014. "Financial Crisis Resolution and Federal Reserve Governance: Economic Thought and Political Realities," Economics Working Paper Archive wp_784, Levy Economics Institute.
    2. Susan Belden, 1994. "The information value of FOMC meeting notes and policy directives," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 13(4), pages 769-777.

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