Discusses an aspect of federal monetary policy known as “transparency”.
This paper gives a brief summary of the U.S. economic performance since 2003 and then discusses the current debate over how much the Fed should communicate the goals, strategy, and conduct of monetary policy. The paper emphasizes the issue of transparency and explains why transparency is important not just for accountability, but for monetary policy to succeed at all.
“The sub par performance of the U.S. economy extended into the first half of 2003. Although accommodative macroeconomic policies and continued robust productivity growth helped to sustain aggregate demand, businesses remained cautious about spending and hiring. All told, real gross domestic product continued to rise in the first half of the year but less quickly than the economy’s productive capacity was increasing, and margins of slack in labor and product markets thereby widened further. As a result, underlying inflation remained low.”