Edward S. Prescott
Federal Reserve Bank of Cleveland
1455 E. 6th St.
Cleveland, OH 44114
Institutional Affiliation: Federal Reserve Bank of Cleveland
NBER Working Papers and Publications
|July 2019||Federal Reserve Structure, Economic Ideas, and Monetary and Financial Policy|
with Michael D. Bordo: w26098
The decentralized structure of the Federal Reserve System is evaluated as a mechanism for generating and processing new ideas on monetary and financial policy. The role of the Reserve Banks starting in the 1960s is emphasized. The introduction of monetarism in the 1960s, rational expectations in the 1970s, credibility in the 1980s, transparency, and other monetary policy ideas by Reserve Banks into the Federal Reserve System is documented. Contributions by Reserve Banks to policy on bank structure, bank regulation, and lender of last resort are also discussed. We argue that the Reserve Banks were willing to support and develop new ideas due to internal reforms to the FOMC that Chairman William McChesney Martin implemented in the 1950s. Furthermore, the Reserve Banks were able to succeed at...