There is much dispute about the efficacy of countercyclical monetary policy. In part this is due to disagreements about economic theory, or about the size of certain parameters. But much of it reflects different assumptions about the extent to which political pressures prevent the Fed from following appropriate policies, the degree to which its policies are influenced by its own bureaucratic interests, and the efficiency with which it makes policy. Hence, I invited a number of economists and political scientists, most of whom have worked on these problems, to write chapters for a volume dealing with Fed behavior. The resulting chapters cover many aspects of Fed policy, such as its actual independence, its devotion to the public interest, and biases and inefficiencies in its policy-making.

The picture that emerges in these chapters differs sharply from the traditional “textbook” view, which has monetary policy being made by an independent central bank, totally devoted to the public interest, using the most sophisticated tools of economic analysis. In that textbook view, it is only a lack of certain information, such as the absence of reliable forecasts, that constrains the Fed's policy-making. The chapters in this volume show how implausible that textbook view is. Yet this book is not just another exercise in Fed-bashing. It is not the Fed's fault that its actual independence is sharply circumscribed. Nor is the Fed the only organization whose policy-making is influenced by self-interest, by biases, and by cognitive difficulties. I suspect that the Fed has a much better record than do most other government agencies, or the universities, for that matter.