In what way does the Federal Reserve have a high degree of instrument independence
Response 1:) Jayne
In what way does the Federal Reserve have a high degree of instrument independence?
The Federal Reserves (Mishkin 2019, p. 375) has two kinds of independence; the instrumental gives the agency the authority to implement monetary policy without interference or influence from other political branches. That independence exists because they are not the governor of the board are appointed for a fourteen-year term but are subjected to termination.
If it has a specific mandate from Congress to achieve “maximum employment and low, stable prices,” then how does the Fed have goal independence?
Mishkin (2019, p. 375) another kind of independence of the Federal Reserve is goal independence. If given a mandate from Congress to achieve “maximum employment and low, stable prices,” the Federal Reserve would have the autonomy to choose how the goals are to be implemented.
Reference:
Mishkin, F. (2019). The economics of money, banking, and financial markets (5th ed.). Pearson.ISBN: 978-0134734200
Response 2.) Michael
The Federal Reserve (Fed) has a high degree of instrument independence, meaning it can set monetary policy instruments without direct accountability or interference from other government agencies (Mishkin, 2019). Members of the Fed’s Board of Governors serve non-renewable 14-year terms, so they are less influenced by pressure from political leaders.
Congress, in the interest of the public, did issue a dual mandate to the Fed to achieve maximum employment and low, stable prices (Federal Reserve, 2021). However, the Fed still has goal independence because Congress does not determine the specific goals of employment and price levels. The Fed has flexibility in adjusting the specific goals based on changes in the economy, yet, the Fed also recognizes accountability to Congress and the public since Congress can ultimately impact the Fed’s independence through legislation (Mishkin, 2019).
Federal Reserve. (2021). The fed explained: What the central bank does. Board of Governors of the Federal Reserve System.
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