A Return to Jekyll Island: The Origins, History, and Future of the Federal Reserve - November 5-6, 2010
Federal Reserve Bank of Atlanta and Rutgers University
November 5–6, 2010, Jekyll Island Club Hotel, Jekyll Island, Georgia
The conference was held to mark the centenary of the 1910 Jekyll Island meeting that resulted in draft legislation (the Aldrich Plan) for the creation of the U.S. central bank. The problem facing the framers of the Aldrich Plan was how to create a central bank that could effectively function in a country such as the United States, with its diverse geographic, political, and economic interests. The resulting plan for a "decentralized central bank" was incorporated, with some modification, into the legislation that brought the Federal Reserve into being—the Federal Reserve Act of 1913.
The general theme of the conference was to document and examine the performance of the Federal Reserve—historical, contemporary, and prospective—in the light of the Aldrich Plan's original vision. The conference was made up of nine sessions.
Sessions 1–3 examined the uneven beginnings of the Federal Reserve System. Eugene White (session 1) described how the arrival of the Federal Reserve as a bank regulator had the undesirable side effect of weakening existing bank regulation. Michael Bordo and David Wheelock (session 2) explained how this inadequate regulatory situation, in combination with technical defects in the 1913 Federal Reserve Act, caused the Fed to serve as an ineffective lender of last resort at the outbreak of the Great Depression. The Fed's lackluster early performance as lender of last resort contrasts with the Bank of England's successful interventions during various nineteenth century financial events. Using archival data, Marc Flandreau and Stefano Ugolini (session 3) documented that the Bank of England's liquidity provision during the 1866 Overend-Gurney crisis was much more extensive than the drafters of the Aldrich Plan would have realized.
Sessions 4–6 focused on the performance of the Fed since the passage of the Federal Reserve Act. Charles Calomiris (session 4) argued that the Fed's early (before the 1951 Treasury-Fed accord) attempts at monetary policy were flawed by errors of economic reasoning that Fed policymakers were slow to recognize. Learning from past mistakes was hindered by the extreme macroeconomic volatility over this period. Based on an examination of FOMC transcripts and other Fed internal documents, Robert King (session 5) contended that the situation had improved by the late 1960s. Fed policy during this period emphasized what King terms "practical monetarism" and incorporated concepts such as inflation expectations, the natural rate of unemployment, and policy credibility. Monetarist considerations were cast aside in late 1969, however, setting the stage for the Great Inflation of the 1970s. The Great Inflation ended with the Volcker Disinflation of the early 1980s and was followed by a period of relative stability known as the Great Moderation. This period of calm was interrupted by the collapse in housing prices and the events of the 2007–8 crisis, which in turn led to unprecedented credit market interventions by the Fed. The paper by Lawrence Christiano and Daisuke Ikeda (session 6) offered up a theoretical assessment of these interventions.
Marvin Goodfriend (session 7) offered a firsthand account of the Fed's decentralized approach to policymaking. Drawing on official transcripts of FOMC meetings and personal recollection, Goodfriend described how new approaches to monetary policy were gradually incorporated into the FOMC debate over the period in which Goodfriend was present at its meetings (1993–2002). The final paper of the conference, by Narayana Kocherlakota (session 8), focused specifically on the topical issue of asset bubbles. Drawing on the economic theory of "rational bubbles," Kocherlakota argued that bubbles—which occur when an asset's market price exceeds what people would pay to buy and hold the asset—may serve an economic purpose (wealth accumulation), but their randomness imposes costs on an economy. Kocherlakota argued that economic theory does not naturally point to monetary policy as a way of counteracting the effects of a bubble collapse but instead to (1) financial regulation that constrains regulated institutions' holdings of bubble assets and (2) fiscal policies that shift bubbles' wealth accumulation role from private to public sector claims.
The last session (session 9) featured a panel discussion of the conference themes by three influential Fed policymakers: E. Gerald Corrigan (president of the New York Fed, 1985–93), Alan Greenspan (chairman, Board of Governors, 1987–2006), and Ben Bernanke (chairman, Board of Governors, 2006–present). The discussion was wide-ranging and covered such topics as the Fed response to the 1987 stock market crash, the Great Moderation, the liquidity interventions in response to the 2008 Lehman crisis, and the Fed's ongoing efforts at quantitative easing.
Public Affairs Department
Federal Reserve Bank of Atlanta
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