How Central Should the Central Bank Be?

The nature and scope of the Federal Reserve's authority and the structure of its decision making are now "on the table'' to an extent that has not been seen since 1935, and the Fed's vaunted independence is under some attack. This essay asks what the Federal Reserve should—a...

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Bibliographic Details
Published in:Journal of economic literature 2010-03, Vol.48 (1), p.123-133
Main Author: Blinder, Alan S.
Format: Article
Language:English
Subjects:
Bank loans
Bank regulation
Bank reserves
Banking regulation
Central banks
Decision making
Economic bubbles
Economic policy
Economic regulation
Economists
Federal Reserve Bank
Federal Reserve monetary policy
Financial institutions
Forum on the Role of the Federal Reserve
Governors
Macroeconomics
Monetary policy
Political appointments
Risk assessment
Studies
Systemic risk
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Summary:The nature and scope of the Federal Reserve's authority and the structure of its decision making are now "on the table'' to an extent that has not been seen since 1935, and the Fed's vaunted independence is under some attack. This essay asks what the Federal Reserve should—and shouldn't—do, leaning heavily on the concept of economies of scope. In particular, I conclude that the central bank should monitor and regulate systemic risk because preservingfinancial stability is (a) closely aligned with the standard objectives of monetary policy and (b) likely to require lender of last resort powers. I also conclude that the Fed should supervise large financial institutions because that function is so closely to regulating systemic risk. However, several other functions now performed by the Fed could easily be done elsewhere.
ISSN:0022-0515
2328-8175
DOI:10.1257/jel.48.1.123