2. Central Banking and the Conduct of Monetary Policy
Part III
Central Banking and the Conduct of Monetary Policy

3. Structure of Central Banks and the Federal Reserve System
Chapter Six
Structure of Central Banks and the Federal Reserve System

4. Formal Structure of the Fed
Figure 6.1: Formal Structure and Allocation of Policy Tools in the Federal Reserve
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Federal Reserve home page

5. Federal Reserve Districts
Figure 6.2: Federal Reserve System
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6. Informal Structure of the Fed
Figure 6.3: Informal Power Structure of the Federal Reserve System
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7. Central Bank Independence
Factors making Fed independent
Members of Board have long terms
Fed is financially independent—this is most important
Factors making Fed dependent
Congress can amend Fed legislation
President appoints Chairmen and Board members and can influence legislation
Overall, Fed is quite independent
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8. Central Bank Independence
Other Central Banks
Bank of Canada and Bank of Japan—fair degree of independence, but not all on paper
Bank of England and Bank of Japan made more independent in 1997 and 1998, respectively.
European Central Bank most independent
Trend to greater independence
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9. Explaining Central Bank Behavior
Theory of Bureaucratic Behavior
Is an example of principal-agent problem
Bureaucracy often acts in own interest
Implications for Central Bank Behavior
Act to preserve independence
Try to avoid controversy—often plays games
Seek additional power over banks
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10. Explaining Central Bank Behavior
Should Fed be independent?
Case for
Independent Fed likely has longer run objectives, politicians don't—evidence is that get better policy outcomes
Avoids political business cycle
Less likely budget deficits will be inflationary
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11. Explaining Central Bank Behavior
Case against
Fed may not be accountable
Hinders coordination of monetary and fiscal policy
Fed has often performed badly
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12. Figure 6-4: Central Bank Independence and Macroeconomic Performance in 17 Countries
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