The Founding of the Fed and the Destabilization of the Post-1914 Economy

Jeffrey A Miron ()

No 2701, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A standard assumption in the literature on optimal monetary policy is that the proper goal of policy is the reduction of the variation in output around its natural rate level. The stabilization of output has not always been accepted as the primary goal of policy, however. This paper argues that neither the founders of the Federal Reserve System nor the central bankers in charge during the first twenty-five years of the Fed's existence viewed the elimination of short term movements in output as an important objective for policy. Instead, the framers of the Federal Reserve System and the early practitioners of central banking in the United States apparently thought that "stabilization" of asset markets was the crucial task for the monetary authority. The paper compares the performance of the United States economy during the twenty-five year periods before and after 1914 and shows that after the founding of the Fed the variance of both the rate of growth of output and of the inflation rate increased significantly, while the average rate of growth of output fell, and real stock prices became substantially more volatile. The remainder of the paper then suggests that the deterioration in the performance of the economy after 1914 can be attributed directly to the actions of the Fed.

Date: 1990-02
Note: EFG
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w2701.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: THE FOUNDING OF THE FED AND THE DESTABILIZATION OF THE POST-1914 ECONOMY (1988)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:2701

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2701
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().