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Independent within—not of—Government: The Emergence of the Federal Reserve as a Modern Central Bank

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  • Owen F. Humpage

Abstract

Independence is the hallmark of modern central banks, but independence is a mutable and fragile concept, because the governments to whom central banks are ultimately responsible can have objectives that take precedence over price stability. This paper traces the Federal Reserve?s emergence as a modern central bank beginning with its abandonment of monetary policy for debt-management operations during the Second World War and through the controversies that led to the Treasury-Federal Reserve accord in 1951. The accord, however, did not end the Federal Reserve?s search for independence. After the accord, the Federal Reserve?s view of responsibilities \"within\" government led it to policies?even keel and foreign exchange operations?that complicated the System?s ability to conduct monetary policy.

Suggested Citation

  • Owen F. Humpage, 2014. "Independent within—not of—Government: The Emergence of the Federal Reserve as a Modern Central Bank," Working Papers (Old Series) 1402, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1402
    DOI: 10.26509/frbc-wp-201402
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    References listed on IDEAS

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    1. Barry Eichengreen & Peter M. Garber, 1991. "Before the Accord: U.S. Monetary-Financial Policy, 1945-51," NBER Chapters, in: Financial Markets and Financial Crises, pages 175-206, National Bureau of Economic Research, Inc.
    2. Charls E. Walker, 1954. "Federal Reserve Policy and the Structure of Interest Rates on Government Securities," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 68(1), pages 19-42.
    3. Wicker, Elmus R, 1969. "The World War II Policy of Fixing a Pattern of Interest Rates," Journal of Finance, American Finance Association, vol. 24(3), pages 447-458, June.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Fed Goes to War: Part 3
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2020-04-12 15:52:32

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    More about this item

    Keywords

    Second World War; U.S. Treasury-Federal Reserve Accord; Even Keel;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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