Central Banking in Theory and Practice

by Alan S. Blinder

Central Banking in Theory and Practice by Alan S. Blinder. MIT Press,1998

Genres: Economics, Banking

Unknown Binding

First published January 1, 1998

About the author

Alan Stuart Blinder is an American economist at Princeton University serving as the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs in the Economics Department, and vice chairman of The Observatory Group. He founded Princeton’s Griswold Center for Economic Policy Studies in 1990. Since 1978 he has been a Research Associate of the National Bureau of Economic Research. He is also a co-founder and a vice chairman of the Promontory Interfinancial Network, LLC. He is among the most influential economists in the world according to IDEAS/RePEc, and is "considered one of the great economic minds of his generation."

Blinder served on President Bill Clinton's Council of Economic Advisors (January 1993 - June 1994), and as the Vice Chairman of the Board of Governors of the Federal Reserve System from June 1994 to January 1996.

Reviews

[Richard Marney · Rating 3 out of 5]

I reread this 1999 collection of essays to focus on the question of central bank independence.

Consider Turkey today ( or what Trump wanted for the US ).

Professor Blinder’s conclusion:

“I conclude that central bank independence is a fine institution that ought to be preserved where it exists and emulated where it does not. However, as the lawyers say, it needs to be "perfected." One important improvement would be to make the central bank's thinking on monetary policy more transparent. I have argued that such an innovation could both improve the quality of stabilization policy and make independent central banking more consistent with democracy. The arguments on the other side strike me as thin gruel. While anything can be rationalized by some theory, economists do not normally claim that markets function better when they are less informed. I have also argued that modern central banks ought to assert their independence from the financial markets just as vigorously as they assert their independence from politics.”

[Viktor Nilsson · Rating 4 out of 5]

Having an interest in economics and finance, I read this book to broaden my circle of competence into central banking. To me, the title and the slim format made it look like a beginners guide into central banking, but that's really not the case. Despite quite a few algebraic equations and references to macro-economic theories that I wasn't (and still isn't) familiar with, I found this book an interesting read. The reason for this is that Blinder is very good at laying out his thoughts in a way that is easy to grasp. This book discusses questions that are both very fundamental and prevalent over time, no matter the current macro-economic environment. But somebody better schooled in macro-economics than I would probably appreciate it more.

[Kenyon Harbison · Rating 4 out of 5]

Three lectures on central banking by a former vice-chairman of the FOMC, and Princeton economics professor. I read this in my continuing desire to understand central bank policies a little bit better. Lecture one is on targeting and problems w/regard to targeting, whether the Fed should try to prevent crises, whether it can, targeting methods, the problems with the macroeconomic models and model uncertainty. Blinder argues that academics (and all of us) need to understand the committee nature of the decision-making, subject to the ultimate authority of the Chairman. The second lecture deals broadly with which policy instrument the Fed should and/or does use (as between focusing on money supply, vs focusing on interest rate -- the latter won by default), and further assesses whether policy should even be discretionary or should follow a mechanical rule (he comes down strongly in favor of valuing the discretion of humans over the use of a formula), discusses the difference between the real and nominal interest rate set by the Fed, discusses the potential inflationary bias that Feds may succumb to, and various academic proposals for overcoming it. The third lecture discusses the role of the Fed; Blinder reminds us it was created by Congress (which I knew of course), that Congress can pass a law to overrule a Fed decision at any time (which seems obvious, but which I didn't know), the relationship between the relative independence of the world's central banks and the amount of inflation in their countries (more independence tends to mean lower inflation), and how legislatures are more likely to succumb to short-term desires than a central bank is, which is why when a central bank is less independent inflation is higher. He approves (as I do) of Congress' decision to transfer monetary policy to an institution, the Fed, that is more independent/long-term-focused, and he raises the question (as I have often wondered) of why Congress does not transfer fiscal tax policy to an independent, long-term-oriented authority as well. Such concerns and questions are particularly of interest in our time, as Congress continues to focus on getting reelected in 2012 rather than on solving long-term structural problems. This book is a little too academic to be a ripping read, and there are a fair amount of algebraic formulas. But I found it informative and relatively accessible.

[Seth Oldmixon · Rating 3 out of 5]

Central Banking in Theory and Practice is a collection of three lectures by former Vice-Chairman of the Federal Reserve Board and current Princeton economist Alan S. Blinder. It's a great overview of central banking, but it assumes a certain familiarity with economics and monetary policy - it's not a layman's book. Still, it's not impenetrable, and readers willing to put in some effort will likely find that they learn something about what is likely one of the most opaque parts of government.

[Erick Beltrán · Rating 4 out of 5]

Me parece un libro básico para cualquiera (con mínimos conocimientos económicos) que desee iniciarse en temas monetarios.

[Tobias · Rating 4 out of 5]

I had expected that this pamphlet would be a museum piece given how much the conventional wisdom on monetary policy has shifted over the past decade. However, I found this to be a useful short meditation on central banking that is still extremely relevant today. Among the themes he discussed: central bank independence from politicians and markets; managing the tradeoff between employment and inflation; rules vs. discretion; and the instruments of monetary policy. Quantitative easing may have changed the landscape for monetary policy but maybe the fundamental issues surrounding central banks haven't changed quite so much after all.