In his new paper, Alan Blinder explores what should a central bank do and not do? The paper is written on Fed but lessons can be taken for all.
About six years ago, I published a small book entitled The Quiet Revolution (Blinder 2004). Though its subtitle was “Central Banking Goes Modern,” I never imagined the half of it. Since March 2008, the Federal Reserve has gone post-modern with a bewildering variety of unprecedented actions that have either changed the nature and scope of the central bank’s role or stretched it beyond the breaking point, depending on your point of view. And that leads straight to the central question of this essay: What should–and shouldn’t–the Federal Reserve do?
He says there are four traditional roles of central bank: