Laboratories of Central Banking

Abstract

Since its founding in 1913, the central bank of the United States has enjoyed a reputation as an erudite institution. Rigorous, well-resourced, and expansive research has become a hallmark of the Federal Reserve System. Indeed, research is itself a core function of the Fed: it both underpins Fed policy and serves as the vehicle through which the Fed communicates its purpose and aims to the public. Spread across twelve regional Reserve Banks, the research function is also uniquely experimental in its nature.

Yet to date, little scholarly attention has been paid to the research function of the Federal Reserve. Consequently, important questions remain unanswered: what are the legal and policy implications of research experimentation at the Reserve Banks, which are in fact private institutions albeit serving public aims? Drawing together primary source documents and a novel data set of nearly 5,000 hand- collected research documents from the twelve Federal Reserve Banks, this Article tells the untold story of the research function of the Federal Reserve—from 1913 through the present day.

The historical and empirical narrative demonstrates how the research function dedicated the System to public transparency, and enabled intellectual exploration and experimentation that led to sounder policy. But it also underscores the delicate balance between experimentation among the Regional Reserve Banks and the need for accountability to the Board. In recent years, as the research function has grown in scope and drifted away from the Board’s purview, there exists potential for politicization of the System overall in the pursuit of new agendas.