Finance and Economics Discussion Series

This paper reviews Allan H. Meltzer's "A History of the Federal Reserve, Volume 2." This two-book volume covers Federal Reserve policies from 1951 to 1986. The book represents an enormous achievement in synthesizing a great amount of archival information into a historical account grounded on economic analysis. At the same time, Meltzer's interpretation of specific eras is open to question. He does not appear to acknowledge adequately the degree to which 1950s monetary policy decisions had a solid analytical foundation. Furthermore, Meltzer's account of the shift from the 1970s inflation to the 1980s disinflation implausibly stresses a shift in policymakers' objective function. The crucial change over this period, both in the United States and other countries, is more likely to have been policymakers' improved grasp of the connections between monetary policy and inflation. The review also takes issue with Meltzer's account, in his book's epilogue, of the financial crisis from 2007 to 2009. In this epilogue, Meltzer understates the degree to which the Federal Reserve's reaction to the financial crisis was in line with the historical practice of the Federal Reserve and other central banks.