Federal Reserve Independence: A Centennial Review

Abstract

Implicit in monetary models and policy prescriptions is the assumption that the Fed is independent of political and bureaucratic influence. We challenge this assumption. We consider three channels through which the independence of the Fed has been compromised over its 100-year history; debt accommodation, political influence, and the bureaucratic structure of the Fed. Future research needs to address how these separate influences have become operational, the mechanism of their operation, and their interaction. We argue that contextualized anecdotal histories are necessary to corroborate the existing empirical studies and to inform future studies.

Keywords: Federal Reserve, central bank independence, monetary policy, robust political economy

JEL Classification: E58, E61, P16, P26