TY  - JOUR
AU  - Calomiris, Charles W
AU  - Wheelock, David C
TI  - Was the Great Depression a Watershed for American Monetary Policy?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5963
PY  - 1997
Y2  - March 1997
DO  - 10.3386/w5963
UR  - http://www.nber.org/papers/w5963
L1  - http://www.nber.org/papers/w5963.pdf
N1  - Author contact info:
Charles W. Calomiris
Columbia Business School
3022 Broadway Street, Uris Hall
New York, NY 10027
Tel: 212/854-8748
Fax: 212/316-9219
E-Mail: cc374@columbia.edu

David C. Wheelock
Research Division
Federal Reserve Bank of St. Louis
P.O. Box 442
St. Louis, MO 63166-0442
Tel: (314) 444-8570
Fax: (314) 444-8731
E-Mail: david.c.wheelock@stls.frb.org
M1  - published as Charles Calomiris, David Wheelock. "Was the Great Depression a Watershed for American Monetary Policy?," in Michael D. Bordo, Claudia Goldin, and Eugene N. White, editors, "The Defining Moment: The Great Depression and the American Economy in the Twentieth Century" University of Chicago Press (1998)

AB  - The Great Depression changed the institutions governing monetary policy. These changes included the departure from the gold standard, an opening of a a new avenue for monetizing government debt, changes in the structure of the the Federal Reserve System, and new monetary powers of the Treasury. Ideo- logical changes accompanied institutional changes. We examine whether and how thes changes mattered for post-Depression monetary policy. With regard to the period 1935-1941, the tools of Fed policy, but not its goals or tactics, changed. But structural reforms weakened the Federal Reserve relative to the Treasury, and removed a key limit on the monetization of government debt. The increased power of the Treasury to determine the direction of policy, along with the departure from gold and the new ment debt produced a new (albeit small) inflationary bias in monetary policy that lasted until the Treasury-Fed Accord of 1951. The Fed regained some independence with the Accord of 1951. The Fed returned to its traditional pre-Depression) operating methods, and the procyclical bias in these procedures--along with pressures to monetize government debt--explains how the Fed stumbled into an inflationary policy in the 1960s.  Depression-era changes--especially the departure from the gold standard in 1933 and the relaxation of an important constraint on deficit monetization in 1932--made this inflationary policy error possible, and contributed to the persistence of inflationary policy.
ER  -