A 

Abortion
Accounting
Advertising
Africa
African-American Studies
Aging
Agriculture
American Indian Studies
Anthropology
Archaeology
Architecture
Argumentative
Art: Artists (Alphabetized)
Art: General
Become an Affiliate and Earn $$$
Biographies (Alphabetized)
Book Reviews (Non-Fiction) (Alphabetized)
Business: Companies (Alphabetized)
Business: General
Business: Industries (Alphabetized)
Business: International
Business: Small
California
Canada
Caribbean
Child Abuse
China
Communication: Journalism
Communication: Language & Speech
Communication: Media
Communication: Non-Verbal
Communication: Television
Communication: Television & Children
Communism
Computer Science
Consumerism
Criminal Justice: General
Criminal Justice: Juvenile Delinquency
Criminal Justice: Police Science
Criminal Justice: Prisons
Cuba
Death & Dying: Euthanasia
Death & Dying: General
Death & Dying: Suicide
Drama: American
Drama: English
Drama: World
Drugs: Alcohol
Drugs: General
Economics: Banking
Economics: Economists (Alphabetized)
Economics: General
Economics: Inflation
Economics: International Trade
Economics: Macroeconomics
Economics: Microeconomics
Economics: Taxation
Education: Administration
Education: Curriculum
Education: General
Education: Higher
Education: Physical
Education: Psychology
Education: Reading
Education: Special
Education: Teaching Methods
Education: Theory
Energy: General
Energy: Nuclear
Energy: Solar
Environmental Studies
Evolution
Family & Marriage
Films: Artists (Alphabetized)
Films: General
Finance: Companies (Alphabetized)
Finance: General
Former Soviet Union: Post-1990
France
Gender & Sexuality
Geography
Germany
History: Ancient Greek & Roman
History: European
History: Great Britain
History: U.S. (After 1865)
History: U.S. (Before 1865)
History: U.S. Presidency
History: U.S. Presidents (Alphabetized)
Homosexuality
Immigration
India
Indonesia
International Relations: Arms Control
International Relations: Cold War
International Relations: Non-U.S.
International Relations: U.S.
Japan
Jewish Studies
Korea
Labor
Latin America
Law: Business
Law: Capital Punishment
Law: General
Law: International & Non-U.S.
Law: Supreme Court
Leadership
Literature, American: Authors (Alphabetized)
Literature, American: Faulkner
Literature, American: Fitzgerald
Literature, American: General
Literature, American: Hawthorne
Literature, American: Hemingway
Literature, American: Melville
Literature, American: Poe
Literature, American: Steinbeck
Literature, American: Twain
Literature, English: Authors (Alphabetized)
Literature, English: Chaucer
Literature, English: Conrad
Literature, English: Dickens
Literature, English: General
Literature, English: Joyce
Literature, English: Lawrence
Literature, English: Shakespeare
Literature, English: Swift
Literature, General: Children
Literature, General: Classic (Greek & Roman)
Literature, General: Russian
Literature, General: World
Management: General
Management: Japanese
Management: Motivation
Management: Theory
Management: Women
Marketing: Companies (Alphabetized)
Marketing: General
Marketing: Plans
Mathematics
Medical: Aids
Medical: Dentistry
Medical: Diseases & Disorders (Alphabetized)
Medical: General
Medical: Nursing
Mexican-American Studies
Mexico
Middle East: Egypt
Middle East: General
Middle East: O.P.E.C.
Military
Music: Classical
Music: General
Mythology
Nutrition
Parapsychology/Occult
Philosophy: Ancient Greek
Philosophy: Descartes
Philosophy: Eastern
Philosophy: General
Philosophy: Kant
Philosophy: Sartre
Poetry: American
Poetry: English
Poetry: Milton
Poetry: World
Political Science: Elections & Campaigns
Political Science: Foreign
Political Science: Lobbyists & Pressure Groups
Political Science: Machiavelli
Political Science: Mill
Political Science: Political Theory
Political Science: U.S.
Psychology: Behaviorism
Psychology: Child & Adolescent
Psychology: Disorders
Psychology: Dreams
Psychology: Experimental
Psychology: Freud
Psychology: General
Psychology: Jung
Psychology: Physiology
Psychology: Piaget
Psychology: Rogers
Psychology: Social
Psychology: Testing
Psychology: Therapies
Public Administration: General
Public Administration: Government Agencies (Alphabetized)
Racism
Real Estate
Recreation & Leisure
Religion: Eastern
Religion: General
Religion: Islam
Religion: The Bible
Research: Completed Studies (With Statistics & Results)
Research: Designs & Proposals
Research: Statistics & Methodology
Russia: Pre-1917 Revolution
Science: Astronomy
Science: Biology
Science: General
Science: Genetics
Sociology: Durkheim
Sociology: General
Sociology: Marx
Sociology: Social Problems
Sociology: Social Theory
Sociology: Social Welfare
Sociology: Weber
Soviet Union: 1917-1990
Sports: Drugs
Sports: General
Technology
Transportation: Automotive
Transportation: Aviation
Transportation: General
Transportation: Railroads
Urban Studies
Vietnam
Women Studies
 

The Federal Reserve   Term Paper ID:27582 Click to get this paper

Essay Subject: Reviews the various theories offered about how a central bank can best be structured. Assesses different views on the effectiveness of the Fed as a central bank.... More...

8 Pages / 1800 Words 9 sources, 15 Citations, APA Format $32.00 Return to List of Papers

Paper Abstract: Reviews the various theories offered about how a central bank can best be structured. Assesses different views on the effectiveness of the Fed as a central bank. Paper Introduction: INTRODUCTION The Federal Reserve is one of the two most important central banks in the world, along with the Bank of Japan. As a central bank, it is charged with steering the monetary policies of the U.S. economy. There is considerable disagreement about the effectiveness of the Federal Reserve in pursuing this mission, and there are also different theories offered as to how a central bank can be structured best to be effective. A comparison of the Bank of Japan and the Federal Reserve in The Economist ("The rewards of independence: central banks: America v. Japan," January 25, 1992) notes first that studies have shown that when central banks are independent of political influence, they tend to deliver lower rates of inflation. They accomplish this without simply costing jobs, for countries with Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. 31."The rewards of independence: central banks: America v. If a governor shouldretire early, his successor takes over for what remains of his term. 93.McNamee, Mike, "A break for banks that won't help consumers one bit," Business Week (March 2, 1992), p. 3 ). 19). Short-term market rates werereduced in tandem with the federal funds rate, and long-term rates alsodeclined. On paper at least, the Federal Reserve is such an independent entity,though there are those who doubt that it is as politically insulated as itis supposed to be. The chairman, also selected by thepresident, has a four-year, renewable term, while the other six have 14-year terms, with one member retiring every two years. Mr. Greenspan also traced the economic ills of the countrylargely to the debt incurred in the 198 s, debts made on the part ofhouseholds, businesses, and the government. Under such systems,workers and employers adjust their wage-setting more readily to the climateof tight money because they believe that the policymakers have a commitmentto low inflation. Mandel, "The Recovery: Why So Slow?," Business Week (July 2 , 1992), pp. Clearly, securities firms wouldbenefit along with the banks (p. Business Week reported in July (July 2 , 1992) on the efforts beingundertaken by the Federal Reserve to do what it could about the economicproblems facing the country. Thesecontradictory aims damage the credibility of the Federal Reserve as aninflation-fighter. One of the most important indicatorsof the money supply for the Fed is M2, but many economists (and the Feditself) have started downplaying the importance of M2, feeling that as longas the recovery appears solid, money growth below the target could beconsidered an aberration. 21-22.Gosselin, Peter G., "Fed chief guarded in predictions," Boston Globe"Like a hurricane," The Economist (November 9, 1991), p. Some saw this effort as an ill-timed failure, however, feelingthat it would invite further speculative attempts over the coming weeks todrive U.S. Another benefit of the lower rates is toallow consumers and businesses to refinance their debt, and this is acrucial part of the reliquification process that is necessary for a lastingrecovery. Workersthus continue to demand high pay raises while bosses continue to concedethem. By July 1992, the Fed hadreduced interest rates eighteen times since 1989 without solving theproblem. In spite of the fact that lower interest rates have not helped theeconomy, the Federal Reserve continues to try to use this tactic for thatpurpose. This is not having the desired effectin this case. As The Economist notes, this appears to be a very independent system,but analysts find ways in which the system can be manipulated for politicalpurposes. The Fedprovided three reasons for these moves: 1) slow money growth; 2) lowinflation; and 3) an uneven recovery. 19-2 ). The general trend of policy by the Federal Reserve in the face of arecession is to cut interest rates. Japan,"January 25, 1992) notes first that studies have shown that when centralbanks are independent of political influence, they tend to deliver lowerrates of inflation. The dual mission of the Fed also means that it receivesa steady stream of advice from the Treasury Department, further reducingits appearance of independence and its effectiveness (p. 3 -31.Farrell, Christopher, Michael J. It boosts cash flow and gives more money to consumers. The Federal Reserve Board sets the discount rate, but the real policy-making body for the Federal reserve is the Federal Open Market Committee(FOMC), which fixes the federal-funds rate, or the rate at which banks lendto one another, and decides monetary growth targets. 6 -66."The Fed Jumps in for Some Second-Half Help," Business Week (July 2 , 1992), pp. A comparison of the Bank of Japan and the Federal Reserve in TheEconomist ("The rewards of independence: central banks: America v. Anothertry was made with a bill to remove the presidents of the district reservebanks from the FOMC, arguing that it is undemocratic for individuals whoare not appointed by elected officials to make public decisions. Yet, this is the sort of data and the type of forecastingwith which the Federal Reserve is involved all the time. Last year, the Federal Reserve saw the U.S. Arecovery did not materialize in 1991, however, and it was believed that afew more interest-rate cuts by the Federal Reserve would do the job, sincethis had worked in every recession since 1948. The president of the Federal Reserve Bank of New York has a permanentvote, while the remaining four votes are shared among the other presidentsin rotation for one-year terms. Lower interest rates have had a beneficial effect on financialmarkets, but not on the economy. In response, commercial banks cuttheir prime rate from six-and-one-half percent to six percent, thuslowering the cost of various consumer loans. The Economist (January 25, 1992) points out that one of the problemsfaced by the Federal Reserve is that it has no clear mandate for some ofits efforts. This meant a widening spread between long and shortrates which hurt depositors while keeping the cost of borrowing high (p.61). 19-21."Thriving on cheap money," The Economist (August 1, 1991), pp. The Fed also trimmed the market-movingfederal funds for the seventeenth time since the beginning of the recessionin July 199 . Federal ReserveChairman Alan Greenspan is expected to do something that will help resolvethe economic problems facing the country, and there is considerableargument over what action he should take that would have the desiredresult. Mr. Greenspan testified before Congress last summer and predictedthat the economy would pick up in the coming months, but the growth wouldnot be significant enough to help with the unemployment problem.Forecasting the rate of unemployment is one of the predictions made by theFederal Reserve to help in deciding interest rates and other policymatters. The rate cutswere expected to keep the economy moving along slowly during the summer,but growth was considered unlikely. Farrell and Mandell (in Business Week) find that the recovery hasbeen hurt by some of the Fed's actions, actions which have helped banks atthe expense of savers and borrowers. These declines were expected to help with housing demand, but thechange in rates by the Federal Reserve can only do so much in an economywhere consumers face slow growth in jobs and incomes and also need torepair their fragile finances. A bill in 1989tried to give the treasury secretary a place on the Federal Reserve Boardand to allow a newly elected president to select his own chairman. Banks and securities houses have beenthe greatest beneficiaries ("Thriving on cheap money," August 1, 1992), pp.7 -71). The Federal Reserve is subject to changes in the law, forinstance, and in recent years Congress has shown a desire to curtail thepower of the Federal Reserve rather than to support it. As a result, banks and securities firmshave been making huge profits. The Federal Reserve often works with other central banks to to bringabout a change in policy on a larger scale. This is a view that the central bank mayreconsider if slow money growth continues along with a struggling economy("The Fed Jumps In for Some Second-Half Help," p. 22). It has no clear mandate to push inflation down, though intheory it has as its goal the stabilization of prices and the support ofgrowth. The Fed cut short-term interest ratesfrom 9.85 percent in 1985 to 3.25 percent in 1992, and the banks eagerlyslashed the rate they paid depositors while hardly lowering their interestrates to borrowers. Bankers cautionedthat this would not necessarily stimulate lending since there was a dearthof creditworthy customers to borrow money. economy. 31). The Wall Street Journalreported last summer that the Fed along with thirteen other central bankshad intervened repeatedly in world currency markets to support the saggingdollar. The Federal Reserve is run by a board of sevengovernors appointed by the president. There isconsiderable disagreement about the effectiveness of the Federal Reserve inpursuing this mission, and there are also different theories offered as tohow a central bank can be structured best to be effective. Theselevels had not been seen since the Kennedy Administration. 7 -71.----------------------- 1 as suffering from acredit crunch which Alan Greenspan called "unprecedented." An analysis ofthe issue in The Economist (November 9, 1991) shows that ascertainingwhether this is true is a very difficult endeavor, with competing trendsmaking the picture uncertain and internal biases in collecting data addingto the problem. The discount rate then stood at three percent, and the newtarget for the federal funds rate was three-and-one-quarter percent. Business Week (July 2 , 1992) notes how much moredifficult the task is during hard economic times such as Americans areexperiencing now, difficulties whose causes are arguable at best.Analysts agree that the financial excesses of the 198 s left behind certainstructural barriers to growth, but the long-term problems of the economyare proving to be more pervasive and harder to overcome than economists,the Bush Administration, or the Federal Reserve seem to have imagined.When the recession started in July 199 , Alan Greenspan along with otherforecasters blamed it on the Persian Gulf war, and they expected a fewmodest cuts in interest rates to get the economy moving once more. They accomplish this without simply costing jobs, forcountries with independent central banks do not, on average, have higherunemployment rates than others, with many having less. Lower interest rates have done little tospur the economy, but they have helped surviving financial firms restoreprofitability and rebuild capital. It has as twin goals full employment and low inflation. Until the mid-198 s, the governors, appointed by the WhiteHouse, were in fact usually selected by the chairman of the Federal Reservefrom among former senior economists in the Federal Reserve system.Political appointments have become more common under Presidents Reagan andBush, with governors who have less often been monetary economists and morelikely to be soft on inflation (pp. The author concludes: "To make monetary policy credible, and hencemore effective, it must be put in the hands of an independent central bank,insulated from political pressures" (p. Japan," The Economist (January 26, 1992), pp. On the other hand, when politicians have a hand insetting monetary policy, they are always tempted to engineer a boom aheadof an election, and thus anti-inflation pledges lack credibility. This makes itdifficult both for the Federal Reserve to develop policy and for outsidersto evaluate. The issue involved is whether the Federal Reserve is democraticallyaccountable. References"Central Banks Intervene to Aid Dollar, but Effort Doesn't Give It a Strong Boost," The Wall Street JournalFarrell, Christopher, "This may be the swift kick the economy needs," Business Week (January 13, 1992), pp. He also said that until thedebt matter was improved, there was little that the Federal reserve orCongress could do to change the economic situation (Gosselin, 1992). Neitherbill has passed to date, but both appear to be a threat to the independenceof the Federal Reserve. lower (August 12, 1992). 21). INTRODUCTION The Federal Reserve is one of the two most important central banks inthe world, along with the Bank of Japan. Critics of the Federal Reserve want more actionright away, but it is not clear what action the Fed could take that wouldhave the desired effect given the nature of the problems facing the economytoday. There are seven boardmembers on the committee, each with one vote, plus the 12 presidents of thedistrict Federal Reserve banks, only five of whom can vote at any one time. As a central bank, it is chargedwith steering the monetary policies of the U.S. Lower interest rates are supposed to stimulate the economy,and even then it generally takes six months before the change is felt(Farrell, 1992: p. Thissystem is intended to prevent a new occupant of the White House frompacking the board with people of his political persuasion. 19-21).FEDERAL RESERVE POLICY The Federal Reserve has been given great focus in recent years as aresult of concerns about inflation, the recession, and related economicmatters, including the growing deficit and tensions created by monetaryscandals which have strained the system more than usual. When the Fed reduced rates in February 1992, it was believed thatbanks would now be free to make loans or buy securities. After the release of the July employmentreport which showed job losses of 117, in the previous quarter, theFederal Reserve cut its official discount rate for the seventh time sinceit hit its peak in December 199 . The 12 are not chosen by the president butby private citizens on the boards of their banks, subject to the approvalof the governors of the Federal Reserve (pp. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.