The Quiet Revolution: Central Banking Goes Modern
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Although little noticed, the face of central banking has changed significantly over the past ten to fifteen years, says the author of this enlightening book. Alan S. Blinder, a former vice chairman of the Federal Reserve System and member of President Clinton's Council of Economic Advisers, shows that the changes, though quiet, have been sufficiently profound to constitute a revolution in central banking.
Blinder considers three of the most significant aspects of the revolution. The first is the shift toward transparency: whereas central bankers once believed in secrecy and even mystery, greater openness is now considered a virtue. The second is the transition from monetary policy decisions made by single individuals to decisions made by committees. The third change is a profoundly different attitude toward the markets, from that of stern schoolmarm to one of listener. With keenness and balance, the author examines the origins of these changes and their pros and cons.
publishes detailed minutes that make the nature of the debate clear with only about a two-week delay. By now, it will surprise no one to learn that I prefer the Bank of England’s model. A monetary policy committee should not emulate the college of cardinals sending up smoke through chimneys. Nor are its meetings grand jury proceedings. After redacting any confidential material that may come up (which is a comparatively easy task), all the major substantive points raised in the discussion can be,
Professor Blinder, entered Washington via the Council of Economic Advisers, and he, like Blinder, left his mark on Washington policymakers. Arthur Okun left Yale for a sta√ position on President Kennedy’s Council of Economic Advisers in 1962. He became a council member in 1964, and chairman in 1966. The anonymous donor for the Arthur Okun Memorial Lecture Series described his admiration for Arthur Okun and the intention of this lecture series in these terms: Arthur Okun combined his special gifts
psychologists have accumulated a significant, though not overwhelming, body of evidence that groups generally outperform individuals. An overly terse summary of the findings might be that groups normally do better than the average individual, but not by as large a margin as would be predicted by, say, a simple statistical Central Banking by Committee 49 model of pooling idiosyncratic knowledge.∞≤ There is also a suggestion in this literature that groups can be too large—presumably because of
individualistic committee will manage to reach a decision but then find it di≈cult to agree on the analysis and reasoning behind it—which can create a communication problem. A series of badly split votes may not inspire confidence that the central bank knows what it is doing, especially if the reasons for the disagreements are aired in public. Remember that one essential aspect of transparency is getting the markets (and the public, to the extent that it is interested) to think like the central
revealed by an inherent impossibility to articulate its insights in explicit and intelligible words and sentences.≤ Introduction 3 Now fast-forward to the present. In 2001, I was part of a fiveauthor international team that wrote a detailed report on central bank transparency (Blinder et al. 2001). Inevitably, much of what I will have to say on that subject here overlaps considerably with that report; after all, my views did not change in the intervening months.≥ So when I lapse into the