August 23, 2012

Who Influences the Fed?

  • Peter J. Boettke

    Director, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
  • Daniel J. Smith

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Implicit in most monetary economists’ models and policy prescriptions is the assumption that the Federal Reserve is largely independent of political and special interest group influence. The authors challenge this assumption. Using existing theoretical and empirical evidence, they detail four channels through which the independence of the Federal Reserve has been compromised in the past; the executive branch, the legislative branch, special interest groups, and the bureaucratic structure of the Federal Reserve itself. For relevancy, these separate influences, rather than being assumed away, should be accounted for in monetary models and policy prescriptions.

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