Monetary Policy and the Quest for Robust Political Economy

41 Pages Posted: 19 Feb 2011 Last revised: 22 Apr 2015

See all articles by Peter J. Boettke

Peter J. Boettke

George Mason University - Department of Economics

Daniel J. Smith

Middle Tennessee State University - Department of Economics and Finance

Date Written: April 21, 2015

Abstract

Attempting to find the technically optimal monetary policy is futile if the Fed’s independence is undermined by political influences. Nobel Laureates F.A. Hayek, Milton Friedman, and James Buchanan each sought ways to constrain and/or safeguard the Fed from political pressures over their scholarly careers. Each Laureate ended up rejecting the possibility of minor reforms being sufficient to secure Fed independence, each concluding separately that only a fundamental restructuring of our monetary structure could ensure a politically-independent monetary regime. Friedman turned to binding rules, Buchanan to constitutionalism, and Hayek to denationalization. We incorporate their intellectual experiences to make a case for applying the concepts of robust political economy to the Fed. Robust political economy calls for relaxing idealized assumptions in order to seek out institutional regimes that can overcome both the epistemic and motivational hurdles that characterize contemporary democratic settings.

Keywords: Monetary Policy, Federal Reserve, Robust Political Economy, Current Financial Crisis

JEL Classification: E58, E61, P16

Suggested Citation

Boettke, Peter J. and Smith, Daniel J., Monetary Policy and the Quest for Robust Political Economy (April 21, 2015). GMU Working Paper in Economics No. 11-08. Available at SSRN: https://ssrn.com/abstract=1764267 or http://dx.doi.org/10.2139/ssrn.1764267

Peter J. Boettke (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-1149 (Phone)
703-993-1133 (Fax)

Daniel J. Smith

Middle Tennessee State University - Department of Economics and Finance ( email )

MTSU Box 190
1301 E. Main St.
Murfreesboro, TN 37132-0001
United States

HOME PAGE: http://www.danieljosephsmith.com/

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