NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Role of Interest Rates in Federal Reserve Policymaking

Benjamin M. Friedman

NBER Working Paper No. 8047
Issued in December 2000
NBER Program(s):   ME

Most central banks, including the U.S. Federal Reserve System, implement their monetary policy by setting interest rates. This paper reviews the major changes that have taken place along the way from the Federal Reserve's interest rate-based policy structure of the 1960s to the interest rate-based structure in place today, and then goes on to consider three open questions that this way of conducting monetary policy presents: (1) whether there is a nominal anchor' problem, and if so whether explicit inflation targeting would solve it, (2) whether there is a role in this policymaking process for interest rates other than whatever particular rate the Federal Reserve chooses to set, or equivalently for equity prices, and (3) to what extent the electronic revolution now under way in banking threatens the efficacy of an interest rate-based monetary policy. The paper concludes by considering the implications of the rules-versus-discretion debate for the role of interest rates in monetary policymaking.

download in pdf format
   (256 K)

email paper

This paper is available as PDF (256 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8047

Published: Benjamin M. Friedman, 2000. "The role of interest rates in Federal Reserve policymaking," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, issue Oct, pages 43-66.

Users who downloaded this paper also downloaded these:
Friedman and Kuttner w16165 Implementation of Monetary Policy: How Do Central Banks Set Interest Rates?
Vegh w8684 Monetary Policy, Interest Rate Rules, and Inflation Targeting: Some Basic Equivalences
Friedman w0917 Federal Reserve Policy, Interest Rate Volatility, and the U.S. Capital Raising Mechanism
Friedman w7420 The Future of Monetary Policy: The Central Bank as an Army With Only a Signal Corps
Friedman w8057 Monetary Policy
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us