What Remains from the Volcker Experiment?

13 Pages Posted: 20 Jun 2005 Last revised: 4 Jul 2010

See all articles by Benjamin M. Friedman

Benjamin M. Friedman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2005

Abstract

Under conventional representations of economic policymaking, any innovation is either (1) a change in the objectives that policymakers are seeking to achieve, (2) a change in the choice of policy instrument, or (3) a change in the way auxiliary aspects of economic activity are used to steer policy in the context of time lags.Most public discussion of the 1979 Volcker experiment at the time, and likewise most of the subsequent academic literature, emphasized either the role of quantitative targets for money growth (3) or the use of an open market operating procedure based on a reserves quantity rather than a short-term interest rate (2). With time, however, neither has survived as part of U.S. monetary policymaking.What remains is the question of whether 1979 brought a new, greater weight on the Federal Reserve%u2019s objective of price stability vis-a-vis its objective of output growth and high employment (1). That is certainly one interpretation of the historical record. But the historical evidence is also consistent with the view that the 1970s were exceptional, rather than that the experience since 1979 has differed from what went before as a whole.

Suggested Citation

Friedman, Benjamin M., What Remains from the Volcker Experiment? (May 2005). NBER Working Paper No. w11346. Available at SSRN: https://ssrn.com/abstract=727126

Benjamin M. Friedman (Contact Author)

Harvard University - Department of Economics ( email )

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