Handbook of Monetary Policy (Public Administration and Public Policy)

1006 Pages·2001·40.64 MB·English

by  Jack Rabin

Handbook of
Monetary
Policy
PUBLIC ADMINISTRATION AND PUBLIC POLICY
A Comprehensive Publication Program
Executive Editor
JACK RABIN
Professor of Public Administration and Public Policy
School of Public Affairs
The Capital College
The Pennsylvania State University--Harrisburg
Middletown, Pennsylvania
1. Public Administration as a DevelopingD iscipline (in two parts), RobertT . Golem-
biewski
2. ComparativNea tionalP olicies on HealthC are,M ilton I. RoemeMr, .D.
3. ExclusionaryIn justice: TheP roblemo f Illegally ObtainedE videnceS, tevenR . Schles-
inger
4. PersonneMl anagemeinn t GovernmenPt.o litics and Process,J ay M. Shafritz, Walter
L. Balk, Albert C. Hyde,a nd DavidH . Rosenbloom
5. OrganizationD evelopmeinn t Public Administration(i n two parts), edited by RobertT .
Golembiewskai nd William B. Eddy
6. Public Administration: A ComparativPe erspective,S econdE dition, Reviseda nd Ex-
panded,F errel Heady
7. Approachetso PlannedC hange(i n two parts), RobertT . Golembiewski
8. ProgramE valuationa t HEW(in three parts), edited by JamesG . Abert
9. TheS tatesa ndt he Metropolis,P atricia S. Florestanoa ndV incentL . Marando
10. Personnel Managemenint GovemmentP: olitics and Process, SecondE dition,
Reviseda ndE xpandedJ, ay M. Shafritz, Albert C. Hyde,a ndD avid H. Rosenbloom
11. ChangingB ureaucracies:U nderstandingth e OrganizationB efore Selecting the Ap-
proach, William A. Medina
12. Handboookn Public Budgetinga nd Financial Managemenetd, ited by Jack Rabina nd
ThomasD . Lynch
13. Encyclopedioaf Policy Studies,e dited by Stuart S. Nagel
14. Public Administrationa ndL aw:B enchv . Bureauin the United States, DavidH . Rosen-
bloom
15. Handboookn Public PersonnelA dministration and Labor Relations, edited by Jack
Rabin,T homaVso cino,W .B artley Hildreth, andG eraldJ . Miller
16. Public Budgetinga ndF inance:B ehavioral,T heoretical, andT echnicalP erspectives,
Third Edition, edited by RobertT . Golembiewsakni dJ ackR abin
17. Organizational Behavior and Public ManagemenDt, ebraW . Stewart and G. David
Garson
18. TheP olitics of Terrorism: SecondE dition, Reviseda nd Expandede,d ited by Michael
Stohl
19. Handboookf OrganizationM anagemenetd, ited by William B. Eddy
20. OrganizationT heorya nd Managemenetd, ited by ThomaDs . Lynch
21. LaborR elationsi n the Public Sector, RichardC . Kearney
22. Politics and Administration: WoodroWw ilson and AmedcaPnu blic Administration,
edited by Jack Rabin and JamesS . Bowman
23. Makinga nd ManaginPgo licy: Formulation,A nalysis, Evaluation, edited by G. Ronald
Gilbert
24. Public Administration: A ComparativPe erspective, Third Edition, Revised, Ferrel
Heady
25. DecisionM akingin the Public Sector, edited by Lloyd G. Nigro
26. ManaginAg dministration, edited by Jack Rabin, SamueHl umesa, nd Brian S. Morgan
27. Public PersonnelU pdate,e dited by MichaelC ohena nd RobertT . Golembiewski
28. State and Local GovemmeAndt ministration, edited by Jack Rabina nd DonD odd
29. Public Administration:A BibliographicG uidet o the Literature, HowardE . McCurdy
30. PersonnelM anagemeinn t GovernmenPt:o litics and Process, Third Edition, Revised
and ExpandedJ,a y M. Shafritz, Albert C. Hyde,a nd DavidH . Rosenbloom
31. Handboookf Information ResourceM anagemenet,d ited by Jack Rabin and Edward
M. Jackowski
32. Public Administration in DevelopedD emocraciesA: ComparativeS tudy, edited by
DonaldC . Rowat
33. TheP olitics of Terrorism: Third Edition, Reviseda nd Expandede,d ited by Michael
Stohl
34. Handboookn HumanS ervices Administration, edited by Jack Rabina nd Marcia B.
Steinhauer
35. Handboookf Public Administration, edited by Jack Rabin, W.B artley Hildreth, and
GeraldJ . Miller
36. Ethics for Bureaucrats:A n Essayo n Lawa nd Values, SecondE dition, Reviseda nd
ExpandedJ, ohn A. Rohr
37. TheG uidet o the Foundationosf Public Administration,D aniel W.M artin
38. Handboookf Strategic Managemenetd, ited by Jack Rabin, GeraldJ . Miller, and W.
BartleyH ildreth
39. Terrorisma nd EmergencMy anagemenPto: licy and Administration, William L. Waugh,
Jr.
40. Organizational Behaviora nd Public ManagementS."e condE dition, Reviseda nd Ex-
panded,M ichaelL . Vasu, DebraW . Stewart, and G. David Garson
41. Handboookf Comparativea nd DevelopmenPt ubfic Administration, edited by Ali
Farazmand
42. Public Administration:A ComparativPee rspective,F ourthE dition, Ferrel Heady
43. GovernmenFti nancial ManagemeTnht eory, GeraldJ . Miller
44. PersonneMl anagemeinn t GovernmenPt.o litics and Process,F ourth Edition, Revised
and ExpandedJ,a y M. Shafritz, NormaM . Riccucci, DavidH . Rosenblooma,n dA lbert
C. Hyde
45. Public Productivity Handbooke,d ited by MarcH olzer
46. Handboookf Public Budgeting,e dited by JackR abin
47. LaborR elationsi n the Public Sector’. SeconEd dition, Reviseda nd ExpandedR,i chard
C. Kearney
48. Handboookf OrganizationaCl onsultation,e dited by RobertT . Golembiewski
49. Handboookf Court Administration and Managemenet,d ited by StevenW . Hays and
Cole BleaseG rahamJ, r.
50. Handboookf ComparativeP ublic Budgetinga nd Financial Managemenet,d ited by
ThomaDs . Lyncha nd LawrenceL . Martin
51. Handboookf OrganizationaBl ehavior,e dited by RobertT . Golembiewski
52. Handboookf AdministrativeE thics, edited by Terry L. Cooper
53. Encyclopediao f Policy Studies: SecondE dition, Reviseda nd Expandede, dited by
Stuart S. Nagel
54. Handboookf Regulationa nd Administrative Law, edited by DavidH . Rosenblooamn d
RichardD . Schwartz
55. Handboookf Bureaucracye, dited by Ali Farazmand
56. Handboookf Public Sector Labor Relations, edited by Jack Rabin, ThomaVs ocino,
W.B artleyH ildreth, andG eraldJ . Miller
57. Practical Public ManagemeRnto, bertT . Golembiewski
58. Handboookf Public PersonneAl dministration, edited by Jack Rabin, ThomaVso cino,
W.B artleyH ildreth, andG eraldJ . Miller
59. Public Administration:A ComparativPee rspectiveF, ifth Edition, Ferrel Heady
60. Handboookf DebtM anagemeendt,i ted by GeraldJ . Miller
61. Public Administration and Law." SecondE dition, David H. Rosenblooamn d Rosemary
O’Leary
62. Handboookf Local GovemmentAdministratioend,i ted by John J. Gargan
63. Handboookf Administrative Communicatione,d ited by JamesL . Garnett and Alex-
ander Kouzmin
64. Public Budgetinga nd Finance: Fourth Edition, Reviseda nd Expandede, dited by
Robert T. Golembiewskain d Jack Rabin
65. Handboookf Public Administration:S econdE dition, edited by Jack Rabin, W.B art]ey
Hildreth, andG eraldJ . Miller
66. Handboookf Organization Theory and Management.T" he Philosophical Approach,
edited by ThomaDs . Lyncha nd ToddJ . Dicker
67. Handboookf Public Finance, edited by Fred Thompsoann d MarkT . Green
68. Organizational Behavior and Public ManagemenTt:h ird Edition, Reviseda nd Ex-
panded,M ichaelL . Vasu, DebraW . Stewart, and G. David Garson
69. Handboookf EconomicD evelopmente, dited by Kuotsai TomL iou
70. Handboookf Health Administrationa nd Policy, edited by AnneO sborneK ilpatrick and
JamesA . Johnson
71. Handboookf ResearchM ethodsin Public Administration, edited by GeraldJ . Miller
and Marcia L. Whicker
72. Handboookn Taxation, edited by W.B artley Hildreth andJ amesA . Richardson
73. Handboookf ComparativPe ublic Administrationi n the Asia-Pacific Basin, edited by
Hoi-kwok Wonga nd HonS . Chan
74. Handboookf Global EnvironmentaPl olicy and Administration, edited by DennisL .
Sodena nd Brent S. Steel
75. Handboookf State GovemmentAdministratioend,i ted by John J. Gargan
76. Handboookf Global LegalP olicy, edited by Stuart S. Nagel
77. Handboookf Public Information Systemse, dited by G. DavidG arson
78. Handboookf Global EconomiPco licy, edited by Stuart S. Nagel
79. Handboookf Strategic ManagementS."e condE dition, Reviseda nd Expandede, dited
by JackR abin,G eraldJ . Miller, andW .B artleyH ildreth
80. Handbooofk GlobalI nternational Policy, editedb y Stuart S. Nagel
81. Handboookf Organizational Consultation: SecondE dition, Reviseda nd Expanded,
edited by RobertT . Golembiewski
82. Handboookf GlobalP olitical Policy, editedb y Stuart S. Nagel
83. Handboookf Global TechnologPyo licy, edited by Stuart S. Nagel
84. Handbooko f Cdminal Justice Administration, edited by M. A. DuPont-Morales,
MichaelK . Hooper,a nd JudyH . Schmidt
85. LaborR elationsin the PublicS ector."T hird Edition, editedb y RichardC . Kearney
86. Handboookf Administrative Ethics: SecondE dition, Reviseda nd Expandede,d ited by
Terry L. Cooper
87. Handboookf OrganizationalB ehavior:S econdE dition, Reviseda ndE xpandede, dited
by RobertT . Golembiewski
88. Handboookf Global Social Policy, edited by Stuart S. Nagela ndA myR obb
89. Public Administration:A ComparativPee rspectiveS, ixth Edition, Ferrel Heady
90. Handboookf Public Quality Managemenetd, ited by RonaldJ . Stupaka nd Peter M.
Leitner
91. Handboookf Public ManagemePnrta ctice and Reform,e dited by Kuotsai TomL iou
92. PersonnelM anagemeinnt GovemmenPt:o litics and Process, Fifth Edition, Jay M.
Shafritz, NormaM . Riccucci, DavidH . RosenbloomK,a therineC . Naff, and Albert C.
Hyde
93. Handboookf Crisis and EmergencMy anagemenet,d ited by Ali Farazmand
94. Handboookf Comparativea nd DevelopmenPt ublic Administration: SecondE dition,
Reviseda nd Expandede, dited by Ali Farazmand
95. Financial Planninga nd Managemeinn t Public Organizations,A lan Walter Steiss and
’EmekaO . Cyprian Nwagwu
96. Handboookf International Health Care Systems,e dited by Khi V. Thai, EdwardT .
Wimberley, and Sharon M. McManus
97. Handboookf MonetaryP olicy, edited by Jack Rabina nd GlennL . Stevens
98. Handboookf Fiscal Policy, edited by Jack Rabina ndG lennL . Stevens
Additional Volumes in Preparation
Principles and Practices of Public Administration, edited by Jack Rabin, RobertP .
Munzenridear,n dS herrieM . Bartell
PublicA dministrationA: nI nterdisciplinaryC ritical Analysis,e ditedb y EranV igoda
Handboookf DevelopmentPaol licy Studies, edited by Stuart S. Nagel
ANNALS OF PUBLIC ADMINISTRATION
1. Public Administration: History and Theoryi n ContemporaPrye rspective, edited by
JosephA . UvegesJ, r.
2. Public AdministrationE ducationin Transition, edited by ThomaVso cinoa ndR ichard
Heimovics
3. CentenaryIs sues of the PendletonA ct of 1883,e dited by David H. Rosenbloowmi th
the assistanceo f MarkA . Emmert
4. IntergovemmentRael lationsi n the 1980s,e dited by RichardH . Leach
5. Criminal Justice Administration:L inking Practice andR esearche, dited by William A.
Jones,J r.
Handbook of
Monetary
Policy
edited by
Jack Rabin
The Pennsylvania State University-Harrisburg
Middletown, Pennsylvania
Glenn L. Stevens
Franklin & Marshall College
Lancaster, Pennsylvania
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Preface
A market economyd epends on governmentf or its very existence. In the United States, the
federal and state governmentess tablish the institutions, laws, and regulations that are nec-
essary for the market economyto function. Capitalist systems are inherently unstable. They
are often characterized by periods of economicp rosperity followed by periods of contrac-
tion and recession. This has been the experience in the United States.
Following enactment of the EmploymenAt ct of 1946, the governmento f the United
States has been committedt o maintaining full employmenat nd price stability. Since 1979,
economicp olicymakers in the United States, and in manyo ther countries, have been com-
mitted to a policy of relative price stability. Today,c entral banks not only agree, moreo r
less unanimously,t hat price stability should be the main goal of monetaryp olicy, but most
of them have in fact achieved it. The average inflation rate in the rich economiesi s cur-
rently just above 1%, its lowest in almost half a century.
The purpose of this handbooki s to explain the developmenta nd implementation of
monetaryp olicy. Wef irst examinet heories and issues related to the preservation of eco-
nomic activity, and include chapters that explore the business cycle, howi t has changed
over the years, and whyt he preservation of economics tability is a principal goal of public
policy. In addition, several contributions provide a historical perspective on the develop-
ment of economic theories and government economic policies. Moreover, we do not ne-
glect the political dimensionso f economicp olicy and howg overnmenta nd private organi-
zations use the tools of economicst o forecast and to measuree conomica ctivity.
Arguably, monetary policy is the most powerful weapona vailable to governmentf or
the managemenotf economica ctivity. Certainly, that has been the experience in the United
States in recent decades. Thus, the second part of the handbookr eviews the development
of monetaryp olicy and its institutions. It also explores the challenge of inflation and how
it has been the principal target of monetaryp olicy. Other articles in this part examinet he
developmenta nd role of financial markets and institutions, issues associated with the im-
plementation of monetaryp olicy, and the managemenotf interest rates.
The companionv olume, the Handboook f Fiscal Policy, contains several articles that
explain the development of governmentf iscal policymaking and the legacy of John May-
nard Keynes. Other selections examine taxes and tax policies, governmentb udgeting and
accounting, and issues associated with governmentd ebt managementS. everal articles dis-
III
iv Preface
cuss the role of governmenitn the formulation of economicp olicies for growtha nd for full
employmentI.t concludes by reviewing issues associated with the implementationo f fiscal
policies.
Jack Rabin
Glenn L. Stevens