Volatile Times And Persistent Conceptual Errors: U.S. Monetary Policy 1914-1951

From The Heritage Foundation:


Monetary Policy/Financial Regulation

Volatile Times and Persistent Conceptual Errors: U.S. Monetary Policy 1914-1951

by Charles W. Calomiris

American Enterprise Institute

November 22, 2010

The persistence of conceptual errors in Fed monetary policy – particularly adherence to the “real bills doctrine” – is a central puzzle in monetary history, particularly in light of the enormous costs of Fed failures during the Great Depression. The institutional, structural, and economic volatility of the period 1914-1951 probably contributed to the slow learning process of policy. Ironically, the Fed’s great success – in managing seasonal volatility of interest rates by limiting seasonal liquidity risk – likely contributed to its slow learning about cyclical policy.



URL: www.aei.org/docLib/CalomirisMonetaryPolicyNovember2010.pdf