How should central banks be - Binder 2012
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How should central banks be - Binder 2012


DisciplinaEconomia Monetária760 materiais16.762 seguidores
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Journal of Economic Literature 2010, 48:1, 123\u2013133
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function is so closely to regulating systemic risk. However, several other functions now 
1.\u2003 Introduction
About\u2003 six\u2003 years\u2003 ago,\u2003 I\u2003 published\u2003 a\u2003 small\u2003book\u2003 entitled\u2003 The Quiet Revolution\u2003
(Alan\u2003 S.\u2003 Blinder\u2003 2004).\u2003 Though\u2003 its\u2003 subtitle\u2003
was\u2003\u201cCentral\u2003Banking\u2003Goes\u2003Modern,\u201d\u2003I\u2003never\u2003
imagined\u2003 the\u2003half\u2003 of\u2003 it.\u2003 Since\u2003March\u20032008,\u2003
the\u2003 Federal\u2003 Reserve\u2003 has\u2003 gone\u2003 postmodern\u2003
with\u2003 a\u2003 bewildering\u2003 variety\u2003 of\u2003 unprece-
dented\u2003actions\u2003that\u2003have\u2003either\u2003changed\u2003the\u2003
nature\u2003 and\u2003 scope\u2003of\u2003 the\u2003 central\u2003bank\u2019s\u2003 role\u2003
or\u2003 stretched\u2003 it\u2003 beyond\u2003 the\u2003 breaking\u2003 point,\u2003
depending\u2003 on\u2003 your\u2003 point\u2003 of\u2003 view.\u2003And\u2003 that\u2003
leads\u2003straight\u2003to\u2003the\u2003central\u2003question\u2003of\u2003this\u2003
essay:\u2003 What\u2003 should\u2014and\u2003 shouldn\u2019t\u2014the\u2003
Federal\u2003Reserve\u2003do?\u2003
The\u2003question\u2003is\u2003not\u2003purely\u2003intellectual,\u2003for\u2003
America\u2003is\u2003now\u2003debating\u2003whether\u2003to\u2003broaden\u2003
its\u2003central\u2003bank\u2019s\u2003wings\u2003or\u2003to\u2003clip\u2003them.\u2003As\u2003I\u2003
write\u2003this\u2003in\u2003late\u2003January\u20032010,\u2003Chairman\u2003Ben\u2003
Bernanke\u2003 has\u2003 just\u2003 been\u2003 through\u2003 a\u2003 bruising\u2003
reconfirmation\u2003fight\u2003in\u2003the\u2003Senate.\u2003Congress\u2003
and\u2003 the\u2003 administration\u2003 are\u2003 arguing\u2003 over\u2003
whether\u2003the\u2003Federal\u2003Reserve\u2019s\u2003roles\u2003in\u2003finan-
cial\u2003 regulation,\u2003bank\u2003 supervision,\u2003 consumer\u2003
protection,\u2003and\u2003the\u2003preservation\u2003of\u2003financial\u2003
stability\u2003 should\u2003 be\u2003 enhanced,\u2003 limited,\u2003 or\u2003
even\u2003eliminated.\u2003There\u2003is\u2003even\u2003discussion\u2003of\u2003
whether\u2003it\u2003has\u2003too\u2003much\u2003independence\u2003in\u2003the\u2003
sphere\u2003 of\u2003monetary\u2003 policy.\u2003 As\u2003 a\u2003 result,\u2003 the\u2003
nature\u2003 and\u2003 scope\u2003 of\u2003 the\u2003 Federal\u2003 Reserve\u2019s\u2003
authority\u2003 and\u2003 the\u2003 \u2003structure\u2003 of\u2003 its\u2003 decision\u2003
making\u2003are\u2003now\u2003\u201con\u2003the\u2003 table\u201d\u2003 to\u2003an\u2003extent\u2003
that\u2003 has\u2003 not\u2003 been\u2003 seen\u2003 since\u2003 1935,\u2003 when\u2003
performed by the Fed could easily be done elsewhere. (\u2003JEL E52,\u2003E58,\u2003G21,\u2003G28)
*\u2009\u2009Blinder:\u2003 Princeton\u2003 University.\u2003 This\u2003 is\u2003 a\u2003 statement\u2003
of\u2003 personal\u2003 views,\u2003 but\u2003 I\u2003 have\u2003 benefited\u2003 from\u2003 innumer-
able\u2003discussions\u2003of\u2003these\u2003issues\u2003over\u2003the\u2003years\u2003with\u2003many\u2003
knowledgeable\u2003 people\u2003 in\u2003 academia,\u2003 government,\u2003 and\u2003
the\u2003 financial\u2003markets.\u2003 I\u2003 thank\u2003 them\u2003 all,\u2003 especially\u2003 Paul\u2003
Volcker,\u2003who\u2003provided\u2003useful\u2003criticisms\u2003of\u2003an\u2003earlier\u2003draft.\u2003
I\u2003 also\u2003 gratefully\u2003 acknowledge\u2003 financial\u2003 support\u2003 for\u2003 my\u2003
research\u2003on\u2003central\u2003banking\u2003from\u2003Princeton\u2019s\u2003Center\u2003 for\u2003
Economic\u2003Policy\u2003Studies.
http:www.aeaweb.org/articles.php?doi=10.1257/jel.48.1.12
How\u2003Centra
Central\u2003B
Alan\u2003S.\u2003
The nature and scope of the Federal Reser
sion making are now \u201con the table\u201d to an e
the Fed\u2019s vaunted independence is under so
Reserve should\u2014and shouldn\u2019t\u2014do, lean
scope. In particular, I conclude that the ce
temic risk because preserving financial stab
objectives of monetary policy and (b) likel
also conclude that the Fed should superv
123
\u2003Should\u2003the\u2003
ank\u2003Be?
linder*
e\u2019s authority and the structure of its deci-
ent that has not been seen since 1935, and 
e attack. This essay asks what the Federal 
g heavily on the concept of economies of 
ral bank should monitor and regulate sys-
lity is (a) closely aligned with the standard 
 to require lender of last resort powers. I 
e large financial institutions because that 
Journal of Economic Literature, Vol. XLVIII (March 2010)124
Corporation\u2003(FDIC),\u2003and\u2003the\u2003Office\u2003of\u2003Thrift\u2003Supervision\u2003
the\u2003 Federal\u2003 Reserve\u2003 Act\u2003 had\u2003 its\u2003 last\u2003major\u2003
overhaul.
In\u2003addressing\u2003 this\u2003 set\u2003of\u2003questions,\u2003 I\u2003will\u2003
lean\u2003 heavily\u2003 on\u2003 the\u2003 concept\u2003 of\u2003 economies 
of scope.\u2003My\u2003 approach\u2003 starts\u2003with\u2003 a\u2003 simple\u2003
and,\u2003 I\u2003 think,\u2003 uncontroversial\u2003 premise:\u2003 that\u2003
monetary policy proper,\u2003 by\u2003 which\u2003 I\u2003 mean\u2003
the\u2003manipulation\u2003of\u2003 interest\u2003 rates\u2003and\u2003bank\u2003
reserves\u2003 to\u2003 steer\u2003 aggregate\u2003 demand\u2003 in\u2003 the\u2003
desired\u2003 direction,\u2003 should\u2003 be\u2003 conducted\u2003 by\u2003
an\u2003independent\u2003central\u2003bank.1\u2003I\u2003will\u2003neither\u2003
elucidate\u2003nor\u2003defend\u2003the\u2003arguments\u2003for\u2003cen-
tral\u2003bank\u2003independence\u2003here.\u2003To\u2003economists,\u2003
at\u2003least,\u2003that\u2003debate\u2003ended\u2003long\u2003ago.\u2003Instead,\u2003
taking\u2003central\u2003bank\u2003independence\u2003over\u2003mon-
etary\u2003policy\u2003as\u2003given,\u2003I\u2003will\u2003pose\u2003and\u2003attempt\u2003
to\u2003answer\u2003two\u2003main\u2003questions:\u2003What\u2003sorts\u2003of\u2003
instruments\u2003 (other\u2003 than\u2003 the\u2003 overnight\u2003 rate)\u2003
must\u2003a\u2003central\u2003bank\u2003control\u2003in\u2003order\u2003to\u2003do\u2003its\u2003
job\u2003most\u2003effectively?\u2003What\u2003other\u2003powers\u2003are\u2003
\u201cso\u2003closely\u2003related\u2003to\u201d\u2003monetary\u2003policy\u2003\u201cas\u2003to\u2003
be\u2003a\u2003proper\u2003incident\u2003thereto\u201d?\u2003\u20032
2.\u2003 The Four Traditional Roles 
of a Central Bank
Central\u2003banks\u2003have\u2003four\u2003traditional\u2003roles:
1.\u2003 conducting\u2003 monetary policy,\u2003 includ-
ing\u2003 the\u2003 possible\u2003 use\u2003 of\u2003 lender\u2003 of\u2003 last\u2003
resort\u2003powers\u2003in\u2003that\u2003regard.\u2003Prior\u2003to\u2003the\u2003
Keynesian\u2003 revolution,\u2003 of\u2003 course,\u2003 cen-
tral\u2003banks\u2003did\u2003not\u2003 typically\u2003 think\u2003 about\u2003
\u2003monetary\u2003policy\u2003the\u2003way\u2003we\u2003do\u2003today.\u2003But\u2003
they\u2003did\u2003perform\u2003the\u2003other\u2003three\u2003roles.
1\u2003\u2003This\u2003 characterization\u2003 of\u2003 monetary\u2003 policy\u2003 is\u2003 deliber-
ately\u2003broader\u2003than\u2003so-called\u2003narrow\u2003inflation\u2003targeting;\u2003it\u2003
explicitly\u2003allows\u2003for\u2003the\u2003Fed\u2019s\u2003dual\u2003mandate.\u2003It\u2003is\u2003fully\u2003con-
sistent,\u2003however,\u2003with\u2003so-called\u2003flexible\u2003inflation\u2003targeting.\u2003
See,\u2003for\u2003example,\u2003Lars\u2003E.\u2003O.\u2003Svensson\u2003(1999),\u2003pp.\u2003200\u2013202.
2\u2003\u2003The\u2003quoted\u2003words\u2003 are\u2003part\u2003 of\u2003Federal\u2003Reserve\u2003 reg-
ulatory\u2003 jargon.\u2003According\u2003 to\u2003 section\u2003 4(c)(8)\u2003 of\u2003 the\u2003Bank\u2003
Holding\u2003 Company\u2003 Act,\u2003 bank\u2003 holding\u2003 companies\u2003 are\u2003
permitted\u2003 to\u2003 engage\u2003 in\u2003 nonbanking\u2003 activities\u2003 that\u2003 are\u2003
\u201cso\u2003closely\u2003 related\u2003 to\u2003banking\u2003as\u2003 to\u2003be\u2003a\u2003proper\u2003 incident\u2003
thereto.\u201d\u2003 The\u2003 interpretation\u2003 of\u2003 that\u2003 phrase\u2003 has\u2003 always\u2003
been\u2003controversial.
2.\u2003 preserving\u2003financial stability\u2003or,\u2003 in\u2003 the\u2003
older\u2003jargon,\u2003preventing\u2003and/or\u2003mitigat-
ing\u2003 panics.\u2003 In\u2003 serving\u2003 this\u2003 classic\u2003 role,\u2003
lender\u2003 of\u2003 last\u2003 resort\u2003 powers\u2003 are\u2003 almost\u2003
always\u2003invoked.
3.\u2003 supervising and regulating\u2003 banks.\u2003
Here,\u2003however,\u2003there\u2003has\u2003been\u2003a\u2003recent\u2003
(and\u2003 partial)\u2003 trend\u2003 away\u2003 from\u2003 having\u2003
bank\u2003supervision\u2003done\u2003inside\u2003the\u2003central\u2003
bank.\u2003 Several\u2003 countries\u2003 have,\u2003 instead,\u2003
placed\u2003 regulatory\u2003 authority\u2003 in\u2003 separate\u2003
agencies\u2003 outside\u2003 the\u2003 central\u2003 bank.\u2003 In\u2003
the\u2003United\u2003States,\u2003of\u2003course,\u2003the\u2003Fed\u2003has\u2003
long\u2003been\u2003just\u2003one\u2003of\u2003four\u2003federal\u2003bank-
ing\u2003agencies.3
4.\u2003 safeguarding\u2003payment and settlement 
systems,\u2003 which\u2003 might\u2003 or\u2003 might\u2003 not\u2003
mean\u2003 actually\u2003 operating\u2003 them.\u2003 Here,\u2003
again,\u2003 lender\u2003of\u2003 last\u2003 resort\u2003powers\u2003 are\u2003
likely\u2003 to\u2003 be\u2003 used\u2003 on\u2003 occasion\u2014as\u2003 the\u2003
Fed\u2003 demonstrated\u2003 dramatically\u2003 right\u2003
after\u20039/11.
You\u2003will\u2003have\u2003noticed\u2003three\u2003distinct\u2003refer-
ences\u2003to\u2003lender\u2003of\u2003last\u2003resort\u2003authority\u2003in\u2003the\u2003
preceding\u2003 list\u2003 of\u2003 four\u2003 functions.\u2003The\u2003 ability\u2003
to\u2003 serve\u2003as\u2003 the\u2003 lender\u2003of\u2003 last\u2003 resort\u2003may\u2003be\u2003
the\u2003defining\u2003power\u2003of\u2003the\u2003central\u2003bank\u2014the\u2003
unique\u2003ability\u2003that\u2003no\u2003one\u2003else\u2003has.\u2003Indeed,\u2003
in\u2003extreme\u2003cases\u2003(e.g.,\u2003\u201cbailouts\u201d),\u2003the\u2003lender\u2003
of\u2003 last\u2003 resort\u2003 role\u2003 can\u2003 even\u2003become\u2003part\u2003 of\u2003
bank\u2003 supervision.\u2003 In\u2003what\u2003 follows,\u2003 I\u2003mostly\u2003
ignore\u2003payments\u2003 system\u2003 issues\u2003 and\u2003 concen-
trate\u2003on\u2003the\u2003other\u2003three.
3.\u2003 Monetary Policy Proper
While\u2003 there\u2003 is\u2003 plenty\u2003 of\u2003 squabbling\u2003 over\u2003
details,\u2003 there\u2003 is\u2003not\u2003much\u2003debate\u2003 these\u2003days\u2003
3\u2003\u2003The\u2003 other\u2003 three\u2003 are\u2003 the\u2003Office\u2003 of\u2003 the\u2003Controller\u2003 of\u2003
the\u2003 Currency\u2003 (OCC),\u2003 the\u2003 Federal\u2003 Deposit\u2003 Insurance\u2003
(OTS).\u2003Each\u2003state\u2003also\u2003has\u2003bank\u2003regulatory\u2003agencies.
125Blinder: How Central Should the Central Bank Be?
about\u2003the\u2003role\u2003of\u2003the\u2003central\u2003bank\u2003in\u2003deciding\u2003
upon\u2003and\u2003implementing\u2003monetary\u2003policy.\u2003In\u2003
most\u2003countries,\u2003the\u2003central\u2003bank\u2003is\u2003given\u2003100\u2003
percent\u2003of\u2003 the\u2003 job,\u2003with\u2003minimal\u2003or\u2003no\u2003out-
side\u2003 interference.\u2003 Still,\u2003 at\u2003 least\u2003 three\u2003 ques-
tions\u2003 are\u2003 on\u2003 the\u2003 table\u2003 in\u2003 the\u2003United\u2003 States\u2003
today.\u2003First,\u2003should\u2003the\u2003Fed\u2003be\u2003more\u2003account-
able\u2003to\u2003Congress\u2003than\u2003it\u2003is\u2003at\u2003present\u2014such\u2003
as\u2003 provided\u2003 for\u2003 in\u2003 the\u2003 Paul\u2003 bill?\u20034\u2003 Second,\u2003
is\u2003 it\u2003 appropriate\u2003 that\u2003monetary\u2003 policy\u2003 deci-
sions\u2003be\u2003made\u2003by\u2003the\u2003nineteen\u2003office-holders\u2003
who\u2003 presently\u2003 constitute\u2003 the\u2003Federal\u2003Open\u2003
Market\u2003 Committee\u2003 (FOMC),\u2003 only\u2003 seven\u2003
of\u2003 whom\u2003 are\u2003 politically\u2003 appointed?\u20035\u2003 Third,\u2003
should\u2003 bursting\u2003 or\u2003 \u201cleaning\u2003 against\u201d\u2003 asset-
price\u2003bubbles\u2003be\u2003an\u2003integral\u2003part\u2003of\u2003monetary\u2003
policy?\u2003I\u2003take\u2003up\u2003each\u2003question\u2003in\u2003turn,\u2003albeit\u2003
briefly.
3.1\u2003Monetary Policy Independence and the 
Paul Bill
In\u2003 the\u2003United\u2003States,\u2003 central\u2003bank\u2003 inde-
pendence\u2003 to\u2003 conduct\u2003 monetary\u2003 policy\u2003 is\u2003
as\u2003 much\u2003 a\u2003 matter\u2003 of\u2003 tradition\u2003 as\u2003 of\u2003 law.6\u2003
Scour\u2003 the\u2003 Constitution,