Michael D. Bordo

Anna Jacobson Schwartz

Owen F. Humpage

The Federal Reserve abandoned foreign-exchange-market intervention because it conflicted with the System's commitment to price stability. By the early 1980s, economists generally concluded that, absent a portfolio-balance channel, sterilized foreign-exchange-market intervention did not provide central banks with a mechanism for systematically influencing exchange rates independent of their monetary policies. If intervention were to have anything other than a fleeting, hit-or-miss, effect on exchange rates, monetary policy had to support it. Exchange rates, however, often responded to U.S. monetary-policy initiatives, so intervention to offset or reverse those exchange-rate responses can seem a contrary policy move and can create uncertainty about the strength of the System's commitment to price stability. That the U.S. Treasury maintained primary responsibility for foreign-exchange intervention only compounded this uncertainty. In addition, many FOMC participants feared that swap drawings and warehousing could contravene the Congressional appropriations process and, therefore, potentially pose a threat to System independence, a necessary condition for monetary-policy credibility.

US foreign-exchange-market intervention during the Volcker-Greenspan era

Exchange Rate Regimes Past, Present and Future

Antu Panini Murshid

We examine the evidence of contagion during the pre World War I era and the interwar and contrast our findings with the evidence of contagion from the recent crises in Asia and Latin America. Using weekly data on bond prices and interest rates, we investigate the extent to which bilateral cross-market correlations rise following the onset of a crisis. After correcting for heteroscedasticity, ala Forbes and Rigobon (1998, 1999), we find little evidence of significant increases in cross-market correlations in either the earlier regimes or in the more recent period. We use principle components analysis to assess the extent of comovement across all markets as well as within various groups of markets, prior to, and after the onset of a crisis. Countries are grouped into regions, as well as along the lines of advanced and emerging. There is little evidence to suggest that cross-country linkages are tighter in the aftermath of a financial crisis for the recent period. There is, however, some evidence of stronger comovement during periods of instability in earlier regimes.

What is the Historical Evidence on Contagion?

Are Financial Crises Becoming Increasingly More Contagious?

Claudia Goldin

Eugene N. White

In contemporary American political discourse, issues related to the scope, authority, and the cost of the federal government are perennially at the center of discussion. Any historical analysis of this topic points directly to the Great Depression, the "moment" to which most historians and economists connect the origins of the fiscal, monetary, and social policies that have characterized American government in the second half of the twentieth century. In the most comprehensive collection of essays available on these topics, The Defining Moment poses the question directly: to what extent, if any, was the Depression a watershed period in the history of the American economy? This volume organizes twelve scholars' responses into four categories: fiscal and monetary policies, the economic expansion of government, the innovation and extension of social programs, and the changing international economy. The central focus across the chapters is the well-known alternations to national government during the 1930s. The Defining Moment attempts to evaluate the significance of the past half-century to the American economy, while not omitting reference to the 1930s. The essays consider whether New Deal-style legislation continues to operate today as originally envisioned, whether it altered government and the economy as substantially as did policies inaugurated during World War II, the 1950s, and the 1960s, and whether the legislation had important precedents before the Depression, specifically during World War I. Some chapters find that, surprisingly, in certain areas such as labor organization, the 1930s responses to the Depression contributed less to lasting change in the economy than a traditional view of the time would suggest. On the whole, however, these essays offer testimony to the Depression's legacy as a "defining moment." The large role of today's government and its methods of intervention—from the pursuit of a more active monetary policy to the maintenance and extension of a wide range of insurance for labor and business—derive from the crisis years of the 1930s.

The Great Depression and the American Economy in the Twentieth Century

The Defining Moment

Athanasios Orphanides

Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity. This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment.

The Rebirth of Modern Central Banking

The Great Inflation

Mark A. Wynne

The importance of international considerations in the US Federal Reserve System's deliberations has become more and more important over time as global financial crises and events create ever stronger repercussions in the US economy. This book critically evaluates the role of the Federal Reserve System as a player in the international monetary system over the past one hundred years, starting with its initial responsibility under the gold standard and looking ahead to the challenges it will face in the twenty-first century under the fiat standard. The book is based on a conference of the same name held at the Federal Reserve Bank of Dallas in September 2014, as part of the Federal Reserve System's centennial, and contributors include many of the most highly regarded financial historians and policymakers.

Michael D. Bordo

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