Federal Reserve

Robert L. Hetzel is a visiting scholar at the Federal Reserve Bank of Chicago, a senior affiliated scholar at the Mercatus Center at George Mason University, and a fellow in the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at Johns Hopkins University. His most recent books include The Monetary Policy of the Federal Reserve: A History and The Great Recession: Market Failure or Policy Failure?.

• List of Figures and TablesChapter 1. In Search of the Monetary StandardChapter 2. The Organization of the BookChapter 3. What Causes the Monetary Disorder That Produces Real Disorder?Appendix: Tables of the Monetary Contraction Marker by RecessionChapter 4. The Creation of the Fed4.1. Populist Opposition to a Central Bank4.2. Reform of the National Banking System and the National Monetary Commission4.3. The Real Bills Foundation of the Early Fed4.4. A Gold Standard Mentality in a Regime of Fiat Money Creation4.5. Concluding CommentChapter 5. Why the Fed Failed in the Depression: The 1920s Antecedents5.1. The Real Bills Ethos of the 1920s5.2. Stopping Speculation without the Discipline of Real Bills and the International Gold Standard5.3. The Controversy over Stabilizing the Price Level5.4. Regulating the Flow of Credit: The “Tenth Annual Report”5.5. Controversy over the Monetary Standard: The Eastern Establishment versus the Populists5.6. Concluding CommentChapter 6. A Fiat Money Standard: Free Reserves Operating Procedures and Gold6.1. Changing the Monetary Standard with No Understanding of the Consequences6.2. The Fed’s Primitive Free Reserves Procedures6.3. Reserves Adjustment and the Call Loan Market6.4. The Pragmatic Development of the New Procedures6.5. Gold Convertibility and Free Gold: Frozen into a Gold Standard Mentality6.6. The Fed’s Incomprehension of the Consequences of Its Operating Procedures6.7. Concluding CommentChapter 7. A Narrative Account of the 1920s7.1. (Mis)Understanding a Paper Money Standard7.2. Benjamin Strong7.3. Adolph Miller—the Nemesis of Benjamin Strong7.4. The 1920–21 Recession7.5. Free Gold7.6. Monetary Policy in Recession: 1923–24 and 1926–277.7. 19277.8. Eliminating Credit Diversion into Securities Speculation7.9. Were the 1920s the “High Tide” of Federal Reserve Monetary Policy?7.10. Concluding CommentChapter 8. Attacking Speculative Mania8.1. Liquidating Speculative Credit by Liquidating Total Credit8.2. New York: Raise the Discount Rate and Banks Will Cut Back on Speculative Loans8.3. The Board: Use “Direct Pressure” to Make Banks Cut Back on Speculative Loans8.4. Marching toward the Great Depression8.5. A Graphical Overview of the Transmission of Contractionary Monetary Policy8.6. Identifying the Cause of the Depression as Contractionary Monetary Policy8.7. Concluding CommentChapter 9. The Great Contraction: 1929–339.1. An Overview of the Great Contraction9.2. The Great Contraction and Unrelievedly Contractionary Monetary Policy9.3. 1930: Why Did the Fed Back Off before Recovery Began?9.4. Guarding against a Revival of Speculation by Keeping Banks in the Discount Window9.5. 1931: Contractionary Monetary Policy Becomes Even More Contractionary9.6. The Gold Standard Transmitted Contractionary US Monetary Policy9.7. 1932: Open Market Purchases and What Might Have Been9.8. 1932: Why Did the Fed Back Off?9.9. Early 1933: The Collapse of the Banking System9.10. What Made the Great Contraction So Deep and So Long?9.11. Why Did Learning Prove Impossible?9.12. Concluding CommentChapter 10. The Roosevelt Era10.1. Another Monetary Experiment10.2. Ending Gold Convertibility in 1933: Setting Off and Killing the Boom10.3. Return to a Gold Peg10.4. Governor Marriner Eccles10.5. The 1936–37 Recession10.6. Keeping the Real Bills Faith10.7. Concluding CommentChapter 11. The Guiding Role of Governor Harrison and the NY Fed11.1. Was Policy “Inept” Because Leadership Shifted Away from New York?11.2. The Origin of the “New York View”11.3. Assessing the Friedman-Schwartz View That Power Shifted from New York to the Board11.4. 193011.5. 193111.6. 193211.7. The Political Economy of Open Market Purchases in 193211.8. 193311.9. The 1936–37 Increases in Required Reserves11.10. Concluding CommentChapter 12. Contemporary Critics in the Depression12.1. H. Parker Willis12.2. John Henry Williams12.3. Charles O. Hardy12.4. Joseph A. Schumpeter12.5. Gottfried Haberler12.6. Carl Snyder12.7. Harold Reed12.8. Lionel D. Edie12.9. John R. Commons12.10. Gustav Cassel12.11. Ralph Hawtrey12.12. T. Alan Goldsborough12.13. Irving Fisher12.14. Lauchlin CurrieChapter 13. From World War II to the 1953 Recession13.1. The Post-Accord Grand Experiment13.2. From the End of the War to the Accord13.3. Explaining Recession with Prewar Inflationary Expectations13.4. From Real Bills to Lean-against-the-Wind: The Crisis Leading to the Accord13.5. What Did the Fed Borrow from and What Did It Abandon of Its 1920s Monetary Policy?Chapter 14. LAW (Lean-against-the-Wind) and Long and Variable Lags14.1. Lean-against-the-Wind (LAW)14.2. LAW with Trade-Offs and Long and Variable Lags14.3. LAW with Credibility or LAW with Trade-Offs?14.4. LAW with Credibility and LAW with Trade-Offs as Semicontrolled Experiments14.5. Concluding CommentsChapter 15. The Early Martin Fed15.1. The End of Real Bills15.2. Free Reserves as the Intermediate Target and Bills Only15.3. Concluding CommentChapter 16. From Price Stability to Inflation16.1. Back-to-Back Recessions: 1957Q3 to 1958Q2 and 1960Q2 to 1961Q116.2. How Did the Early Martin Fed Lose Its Way in the Second Half of the 1960s?16.3. Martin’s Ill-Fated BargainChapter 17. The Burns Fed17.1. The Political and Intellectual Environment17.2. Burns’s View of the Business Cycle and Economic Stabilization17.3. Burns as FOMC Chairman17.4. Inflation as a Cost-Push Phenomenon17.5. “Macroeconometric Failure on a Grand Scale”17.6. Concluding CommentChapter 18. Stop-Go and the Collapse of a Stable Nominal Anchor18.1 The Complicated Politics of an Incomes Policy and Stop-Go Monetary Policy18.2. Lean-against-the-Wind with Trade-Offs or Stop-Go Monetary Policy: A Taxonomy18.3. Burns’s Juggling Act18.4. G. William Miller18.5. The Cost of Allowing Inflation to Emerge in Economic Recovery18.6. Concluding CommentAppendix: Real Rate of InterestChapter 19. The Volcker Fed and the Birth of a New Monetary Standard19.1. Restoring a Stable Nominal Anchor19.2. Creating a New Monetary Standard: LAW with Credibility19.3. The Louvre Accord19.4. A Graphical Overview of Monetary Policy in the Great Moderation19.5. A New Monetary StandardChapter 20. The Greenspan FOMC20.1. Restoring a Stable Nominal Anchor20.2. A Rocky Start with Louvre and the 1987 Stock Market Crash20.3. The 1990 Recession, the Jobless Recovery, an Inflation Scare, and Finally Credibility20.4. The Asia Crisis and the 2000 Recession20.5. Balancing Price Stability with Cost-Push Pressures20.6. Fear of Deflation20.7. Did Expansionary Monetary Policy Cause a Housing Bubble?Chapter 21. The Great Recession21.1. An Overview: This Time Was Not Different from Past Recessions21.2. A Chronology of the Great Recession21.3. Fall 2008, the Lehman Bankruptcy, and the Flight of the Cash Investors21.4. Monetary Policy Takes a Back Seat21.5. Bernanke and the Credit Channel21.6. Reviving Real Bills Theories of the Collapse of Speculative Excess21.7. Contractionary Monetary PolicyChapter 22. The 2008 Financial Crisis22.1. The Financial Safety Net and Moral Hazard22.2. The Cash Investors Run the SIVs in Summer 200722.3. From Bear Stearns to Lehman Brothers22.4. After Lehman22.5. Putting Out the Fires in Fall 200822.6. Bank Bailouts22.7. The Political Economy of Credit Policy22.8. Credit Policy Crowded Out Monetary Policy22.9. Crossing the Rubicon to Allocating Credit22.10. The Great Financial Crisis and Erosion of Support for Free MarketsChapter 23. The Eurozone Crisis23.1. A Narrative Account of the Great Recession in the Eurozone23.2. The Interaction of Financial Crisis and Contractionary Monetary Policy23.3. The Quantitative Impact of a Monetary Shock23.4. Concluding CommentChapter 24. Recovery from the Great Recession24.1. Monetary Policy Was Initially Moderately Contractionary in the Recovery24.2. A Slow Start to the Recovery and Preemptive Increases in the Funds Rate24.3. Secular Stagnation, Fear of Global Recession, and Central Banks Out of Ammunition24.4. Quantitative Easing24.5. What Accounts for the Near Price Stability in the Recovery from the Great Recession?24.6. Concluding CommentAppendix: The FOMC’s QE ProgramsChapter 25. Covid-19 and the Fed’s Credit Policy25.1. Chair Powell Defines the Narrative25.2. What Destabilized Financial Markets in March 2020?25.3. What Calmed Financial Markets in March 2020?25.4. Credit Policy Does Not Draw Forth Real Resources25.5. Supporting Financial Markets While Avoiding Credit Allocation25.6. Can the Fed Maintain Its Independence?25.7. Concluding CommentAppendix: Program DefinitionsAppendix: The Political Economy of Credit PolicyChapter 26. Covid-19 and the Fed’s Monetary Policy: Flexible-Average-Inflation Targeting26.1. FOMC Commentary26.2. An Evolving Phillips Curve Sidelines Inflation26.3. The Return of the Phillips Curve26.4. Monetary Policy Becomes ExpansionaryChapter 27. How Can the Fed Control Inflation?27.1. Is Monetizing Government Debt by the Fed Inflationary?27.2. The Control of Money Creation and Inflation with IOR (Interest on Reserves)27.3. Restoring Money as an Indicator27.4. Concluding CommentChapter 28. Making the Monetary Standard Explicit28.1. Why the FOMC Communicates the Way It Does28.2. Rules versus Discretion as Seen by a Fed Insider28.3. A Case Study in FOMC Decision-Making: The August 2011 Meeting28.4. Using the SEP to Move toward Rule-Based Policy28.5. Using a Model to Explain the Monetary Standard28.6. Rules, Independence, and AccountabilityChapter 29. What Is the Optimal Monetary Standard?29.1. From Monetarism to the “Basic” New Keynesian DSGE Model29.2. The NK Model29.3. LAW with Credibility and LAW with Trade-Offs (Cyclical Inertia)29.4. The Optimal Rule29.5. Money and the NK Model29.6. Concluding CommentChapter 30. Why Is Learning So Hard?AcknowledgmentsBibliographyIndex

"Robert Hetzel presents a historical narrative of how the Federal Reserve has responded to the state of the economy, exploring the evolution of monetary policy over time in terms of the consistency in its response to the economy’s behavior. The Federal Reserve [examines] the lead-up to and fallout from the Great Recession, the 2008 financial crisis, and the European debt crisis, [analyzes] Fed credit and monetary policy during the COVID-19 pandemic, [and considers] how to make the monetary standard explicit and determine the optimal monetary standard."