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What Remains from the Volcker Experiment?

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  • Benjamin M. Friedman

Abstract

Under conventional representations of economic policymaking, any innovation is either (1) a change in the objectives that policymakers are seeking to achieve, (2) a change in the choice of policy instrument, or (3) a change in the way auxiliary aspects of economic activity are used to steer policy in the context of time lags. Most public discussion of the 1979 Volcker experiment at the time, and likewise most of the subsequent academic literature, emphasized either the role of quantitative targets for money growth (3) or the use of an open market operating procedure based on a reserves quantity rather than a short-term interest rate (2). With time, however, neither has survived as part of U.S. monetary policymaking. What remains is the question of whether 1979 brought a new, greater weight on the Federal Reserve's objective of price stability vis-a-vis its objective of output growth and high employment (1). That is certainly one interpretation of the historical record. But the historical evidence is also consistent with the view that the 1970s were exceptional, rather than that the experience since 1979 has differed from what went before as a whole.

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  • Benjamin M. Friedman, 2005. "What Remains from the Volcker Experiment?," NBER Working Papers 11346, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11346
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    References listed on IDEAS

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    1. Benjamin M. Friedman, 1997. "The Rise and Fall of Money Growth Targets as Guidelines for US Monetary Policy," Palgrave Macmillan Books, in: Iwao Kuroda (ed.), Towards More Effective Monetary Policy, chapter 6, pages 137-175, Palgrave Macmillan.
    2. Orphanides, Athanasios, 2004. "Monetary Policy Rules, Macroeconomic Stability, and Inflation: A View from the Trenches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 151-175, April.
    3. Benjamin M. Friedman, 2004. "Why the Federal Reserve Should Not Adopt Inflation Targeting," International Finance, Wiley Blackwell, vol. 7(1), pages 129-136, March.
    4. Frederic S. Mishkin, 2004. "Why the Federal Reserve Should Adopt Inflation Targeting," International Finance, Wiley Blackwell, vol. 7(1), pages 117-127, March.
    5. Barro, Robert J., 1989. "Interest-rate targeting," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 3-30, January.
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    Cited by:

    1. Lina El‐Jahel & Robert Macculloch & Hamed Shafiee, 2023. "How Does Monetary Policy Affect Welfare? Some New Estimates Using Data on Life Evaluation and Emotional Well‐Being," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(8), pages 2001-2025, December.
    2. Andrej Srakar & Marilena Vecco, 2017. "Ex-ante versus ex-post: comparison of the effects of the European Capital of Culture Maribor 2012 on tourism and employment," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 41(2), pages 197-214, May.

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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