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St. Louis Fed's Review: Reflections on Monetary Policy 25 Years After October 1979


ST. LOUIS — A special issue of Review, the Federal Reserve Bank of St. Louis' bimonthly publication of economic and business issues, features papers presented last fall on policymaking after Oct. 6, 1979, when then-Fed chairman Paul Volcker announced that the Federal Reserve's Open Market Desk would trade Treasury securities to achieve weekly targets for a reserve quantity rather than the fed funds rate.

In their editorial introduction, economists Athanasios Orphanides and Daniel L. Thornton noted that the Fed's actions that day "marked the beginning of the end of inflationary malaise that permeated the economy at the time. Starting with its policy actions that Saturday afternoon, the Federal Reserve reaffirmed its responsibility to restore and maintain an environment of price stability in the economy, thereby restoring confidence and setting the stage for a period of lasting economic prosperity. This prosperity has been interrupted only by two mild and shallow recessions over the past two decades."

The titles and authors of the papers are:

  • "Origins of the Great Inflation," by Allan H. Meltzer, the Allan H. Meltzer university professor of political economy at Carnegie Mellon University and a visiting scholar at the American Enterprise Institute. Meltzer offers a historical analysis of the economic and political forces that generated and sustained the "Great Inflation" of the 1960s and '70s, and necessitated the forceful disinflationary actions of October 1979.
  • "The Reform of October 1979: How It Happened and Why," by David E. Lindsay, former deputy director of the Division of Monetary Affairs at the Board of Governors of the Federal Reserve System; Athanasios Orphanides, an advisor in the Division of Monetary Affairs; and Robert H. Rasche, senior vice president and director of research at the St. Louis Fed. They offer a historical review of monetary policy reform, discuss the influences behind it, and gauge its significance.
  • "The Monetary Policy Debate Since October 1979: Lessons for Theory and Practice," by Marvin Goodfriend, senior vice president and policy advisor at the Federal Reserve Bank of Richmond. Goodfriend reviews the evolution of monetary policy theory and practice over the past 25 years, and examines how both theory and policy have been shaped by the earlier experience of the Great Inflation and the reform of October 1979.
  • "The International Implications of October 1979: Toward a Long Boom on a Global Scale," by John B. Taylor, the undersecretary of Treasury for international affairs. Taylor explores the view that the October 6 reform was a critical step in restoring stability, not only in the United States but also around the globe.
  • "Panel Discussion (I): What Have We Learned Since October 1979?" by Ben S. Bernanke, a member of the Board of Governors of the Federal Reserve System; Alan S. Blinder, a professor and co-director of the Center for Economic Policy Studies at Princeton University; and Bennett T. McCallum, a professor at Carnegie Mellon University.
  • "Panel Discussion (II): Safeguarding Good Policy Practice," by Roger W. Ferguson, Jr., vice chairman of the Board of Governors of the Federal Reserve System; Charles A.E. Goodheart, deputy director of the Financial Markets Group of the London School of Economics; and William Poole, president of the St. Louis Fed.

Authors offering commentaries are: Christina D. Romer, a professor of economics at the University of California, Berkeley; Stephen H. Axilrod, a global macroeconomics consultant and former staff director for monetary affairs and financial policy at the Board of Governors; Laurence M. Ball, a professor at The Johns Hopkins University; Robert P. Black, former president of the Federal Reserve Bank of Richmond; Philip E. Coldwell, a former member of the Board of Governors; Joseph R. Coyne, a former assistant to the Board of Governors; and Charles Freedman, a former deputy governor at the Bank of Canada and currently scholar in residence at the Department of Economics, Carleton University, Ottawa.

Review is also available on the Bank's web site :

With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. The St. Louis Fed is one of 12 regional Reserve banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation's central bank, the Federal Reserve System formulates U.S. monetary policy, regulates state-chartered member banks and bank holding companies, and provides payment services to financial institutions and the U.S. government.