Making the Systematic Part of Monetary Policy Transparent

36 Pages Posted: 8 Dec 2012

See all articles by Robert L. Hetzel

Robert L. Hetzel

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2006

Abstract

Significant additional transparency by the Federal Open Market Committee (FOMC) could involve explicitness about objectives, especially an inflation target. Explicitness about objectives, however, is incomplete without explicitness about the strategy for achieving those objectives, that is, about the consistency in the way that the FOMC changes the funds rate in response to incoming information. Consistency in this response (a policy rule) is necessary to ensure that the yield curve responds in a stabilizing way to macroeconomic shocks. The desire of former FOMC chairmen Paul Volcker and Alan Greenspan to re-anchor inflationary expectations, which had become unmoored in the period of stop-go monetary policy, imposed an overall consistency on the monetary policy followed during their tenures. This consistency can constitute the basis for an explicit monetary policy rule.

Suggested Citation

Hetzel, Robert L., Making the Systematic Part of Monetary Policy Transparent (2006). FRB Richmond Economic Quarterly, vol. 92, no. 3, Summer 2006, pp. 255-290, Available at SSRN: https://ssrn.com/abstract=2186143

Robert L. Hetzel (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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