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

Owen F. Humpage

No 1402, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

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.

Keywords: Second World War; U.S. Treasury-Federal Reserve Accord; Even Keel (search for similar items in EconPapers)
JEL-codes: E4 E5 E6 N1 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2014-03-27
New Economics Papers: this item is included in nep-cba, nep-his, nep-hpe, nep-mac and nep-mon
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DOI: 10.26509/frbc-wp-201402

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