The Art of Central Banking (3) — No working theory of inflation and economists’ instinctual attachment to concepts

Daniel K. Tarullo, a former member of the Board of Governors of the United States Federal Reserve, draws two sharp and sound, yet unsurprising, conclusions from his eight-year (2009-2017) service: 

The substantive point is that we do not, at present, have a theory of inflation dynamics that works sufficiently well to be of use for the business of real-time monetary policy-making. The sociological point is that many (though certainly not all) good monetary policymakers who were formally trained as such have an almost instinctual attachment to some of those problematic concepts and hard-to-estimate variables… The macroeconomists [on the FOMC] seemed to display an almost paradoxical coincidence of intellectual doubt and continued affirmation of the utility of some unobservables.”

An open-access source: Tarullo, Daniel K. 2017. “Monetary policy without a working theory of inflation.”

> See the previous peculiar pieces of Art of Central Banking: here and here

> For critical accounts on the Central Banks’ politics and policies see:
— Adolph, Christopher. 2013. Bankers, Bureaucrats, and Central Bank Politics: The Myth of Neutrality. Cambridge University Press.
— Epstein, Gerald. 2019. The Political Economy of Central Banking: Contested Control and the Power of Finance. Edward Elgar.
— 
Hancké, Bob. 2013. Unions, Central Banks, and EMU: Labour Market Institutions and Monetary Integration in Europe. Oxford University Press.
— Maman, Daniel and Zeev Rosenhek. 2011. The Israeli Central Bank: Political Economy, Global Logics and Local Actors. Routledge.
— Tognato, Carlo. 2012. Central Bank Independence: Cultural Codes and Symbolic Performance. Palgrave.

Daniel Tarullo Fed
Daniel K. Tarullo

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3 comments

  1. The question is that whether this is a situation in which we have no working theories at all or theoretical pluralism where the big picture is made up of multiple compatible theories. Exciting!

  2. Many thanks for all 3 pieces on AoCB, Oleg; this is important stuff !
    CB are about policing the fiat credit money of private banks by planning agency.
    Some scientific tools are applied, but it works as informed guess.
    In any case, the statement that there were only 3 real human inventions:
    the fire, the wheel and central banking, holds some truth.

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