Economic Disturbances and Equilibrium in an Integrated Global Economy

Chapter 28

A Single or Dual Mandate

Abstract

There is always talk and speculation in the financial press regarding how the Fed will act at the next FOMC meeting. The pundits and analysts discuss whether or not the economy is ready for an increase in short-term interest rates. Although we have no direct knowledge as to how the Fed will act, we can safely say that the answer to the previous question depends in part on the basic framework adopted by the Fed members, in particular, the chairperson. The adopted framework will largely determine how the Fed reacts to the economic shocks and overall performance of the US economy. The monetarists argue that inflation is too much money chasing too few goods. Hence, the recipe for price stability is a simple ...