Maisel: Reflections on Monetary Policy
(Maisel, a member of the board of governor;; of the Federal Reserve System, is leaving his post to return to teaching and other affairs in California. A concise summary of his reflections on monetary policy and related problems is contained in the following draft of his notes prepared for a final press conference held last week, and reproduced here with ids permission.)</br></br>(Maisel, a member of the board of governor;; of the Federal Reserve System, is leaving his post to return to teaching and other affairs in California. A concise summary of his reflections on monetary policy and related problems is contained in the following draft of his notes prepared for a final press conference held last week, and reproduced here with ids permission.) 1)	What can I say after 7 years on The Fed except that it was a great and 1 think creative experience. One question frequently asked is: ÛÏMas there been any unexpected or basic change in how economy operates in past 7 years?Û I donÛªt think so. In 1955, I wrote a book on analyzing economy and forecasting. I think model contained in that would cover almost all liiat iias happened. There would be some important changes in emphasis and details, but off-hand 1 can think of no major change in concepts, theories or even approach.</br></br>(a)	There has been no major financial crisis. No major financial institutions	failedÛÓalthough	speculation probably was as great as in past periods when they did. Expansion of national output was longer and greater than in any prior expansion. Depth of recession smallerÛÓand it was planned. The basic knowledge means we can avoid major depressions. In 1966 and 1970, there were questions as to</br></br>whether Fed could avoid a ÛÏcrunchÛ by performing as lender of last resort. T assumed Fed would be sensible and it was. Note though this limits tightness of monetary policy compared to what some would advocate. (b)	On the other hand, better knowledge and communication probably means increased basic instability in private sector and particularly in financial markets. Expectations (or speculation) spread faster. People react more rapidly and strongly in the spheres of prices, wages, investments. This raises major problems for policy change.</br></br>(c)	We want to operate within that zone of the trade-off curve of output and pricesÛÓwhere required policy moves go beyond bounds of our information or knowledge. We cannot fine tune to extent wc would like because we are operating within random variance of data and knowledge.