A TIMELY DIALOGUE ON THE MOST IMPORTANT ECONOMIC INSTITUTION IN THE WORLD

The Federal Reserve is the single most important economic policy institution in the United States. Its recent unprecedented actions and interventions have raised serious concerns in many quarters about inflation, as well as the independence and effectiveness of the Fed. In The Road Ahead for the Fed, a group of expert contributors examine the recent actions of the Federal Reserve and discuss how the Fed arrived at this position, how it can best deal with the road ahead, and how it might reduce the likelihood of crisis-driven interventions in the future.

The authors suggest directions for the Fed going forward by drawing on past political, historical, and market principles. They then explain how the Fed arrived at its current unprecedented position and offer practical suggestions on how to exit. And although they concur that market-based mechanism and regulatory reforms will help keep the Fed on the road to good monetary policy in the future, they offer a range of views about whether to emphasize markets or government reform.

AUTHORS: George P. Shultz, Allan H. Meltzer, Peter R. Fisher, Donald L. Kohn, James Hamilton, John B. Taylor, Myron S. Scholes, Darrell Duffie, Andrew Crockett, Michael J. Halloran, Richard J. Herring, and John Ciorciari

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ADVANCE PRAISE FOR THE ROAD AHEAD FOR THE FED

A broken financial system; a great recession; enormous challenges for The Federal Reserve. Financial institutions, the markets and the Fed itself will never be quite the same. John Taylor and John Ciorciari have brought together a highly knowledgeable and experienced group to analyze the issues and make useful and provocative proposals. The Road Ahead for the Fed couldn't be more timely.

-Paul A. Volcker, Former Chairman of the Federal Reserve Board Chairman of the President's Economic Recovery Advisory Board

With so much at stake for the Fed and the world's financial markets, this timely and thoughtful book is a must read. Twelve leading experts critically analyze and candidly debate the most crucial issues facing the Fed, from the need for an exit strategy to incentive-based market reforms. Economic policy makers should take their ideas and recommendations under advisement.

-Mickey D. Levy, Chief Economist, Bank of America

This is a book both to read and to keep on your bookshelf. You will find essays here that will make you smile in agreement and shake your head in disagreement, perhaps both, for the authors are not only smart, but opinionated. But this is a distinguished group, and their opinions are very well-informed, very much worth reading, and very timely.

-Alan S. Blinder, Former Vice-Chairman of the Federal Reserve Board Professor of Economics at Princeton University

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ABOUT THE EDITORS

John B. Taylor is the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution and the Mary and Robert Raymond Professor of Economics at Stanford University.

John D. Ciorciari is an assistant professor at the Gerald R. Ford School of Public Policy at the University of Michigan.

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Copyright ©2009 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission of the publisher.

CONTENTS

• Introduction

PART I: DIRECTIONS FROM POLITICS, HISTORY AND THE MARKET
• Think Long by George P. Shultz
• Policy Principles: Lessons from the Fed’s Past by Allan H. Meltzer
• The Market View: Incentives Matter by Peter R. Fisher

PART II: THE FED’S ENTRY AND EXIT STRATEGIES
• Monetary Policy in the Financial Crisis by Donald L. Kohn
• Concerns about the Fed’s New Balance Sheet by James D. Hamilton
• The Need for a Clear and Credible Exit Strategy by John B. Taylor

PART III: PAVING THE WAY WITH MARKET AND REGULATORY REFORMS
• Market-Based Mechanisms to Reduce Systemic Risk by Myron S. Scholes
• Policy Issues Facing the Market for Credit Derivatives by Darrell Duffie
• Should the Federal Reserve Be a Systemic Stability Regulator? by Andrew Crockett
• Systemic Risks and the Bear Stearns Crisis by Michael J. Halloran
• Why and How Resolution Policy Must Be Improved by Richard J. Herring


• Key Principles and Recommendations by John D. Cirociari


• Acknowledgments
• About the Authors
• Index

To see the book in its entirety, click here.