Has the Fed Been a Failure?
University of Georgia
William D. Lastrapes
University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics
Lawrence H. White
George Mason University - Department of Economics
December 1, 2010
Journal of Macroeconomics, Vol. 34, No. 3, 2012
As the one-hundredth anniversary of the 1913 Federal Reserve Act approaches, we assess whether the nation’s experiment with the Federal Reserve has been a success or a failure. Drawing on a wide range of recent empirical research, we find the following: (1) The Fed’s full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed’s establishment. (2) While the Fed’s performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly flawed predecessor, the National Banking system, before World War I. (3) Some proposed alternative arrangements might plausibly do better than the Fed as presently constituted. We conclude that the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.
Number of Pages in PDF File: 83
JEL Classification: E30, E42, E52, E58
Date posted: November 25, 2010 ; Last revised: March 8, 2013