Monday, September 17, 2007

Greenspan Spills the Beans: Fed NOT Independent

Since my dissertation (completed in 1984 but not published in the Journal of Monetary Economics until 1991) I have argued that there is strong statistical evidence that political events like presidential elections and changes in the partisan control of Congress and the White House have systematic impacts on monetary policy(see this, this, this, or this). Needless to say, this view is not widely shared by macroeconomists.

Now, Alan Greenspan, the "maestro" has a book coming out and he's basically pulling a Jose Canseco, going on media outlets and saying outrageous things, like he was against the Bush tax cuts even though he repeatedly testified in favor of them, to try and move some product.

For my purposes though he did say something interesting to the FT:

Critics say the Fed should have tried harder, raising rates sooner and faster. Mr Greenspan counters that that would not have been acceptable “to the political establishment” given the very low rate of inflation. He says “the presumption that we were fully independent and have full discretion was false.”

Thanks Al !!!!