Currency Crises, Monetary Union and the Conduct of Monetary Policy: A Debate among Leading Economists

Introduced by James Tobin

Corden: The general topic for this session is the US macroeconomy. Bob and I have decided we may also talk about Japan. What we will not talk about is Third World issues (that is saved for the seventh and eighth sessions), or growth per se (saved for the sixth session). The issues will be US fiscal and monetary policy. Why has the US been so successful? Why has Mr Greenspan been so successful? All of that is part of today's session. We will begin with Jim Tobin.

Tobin: Thank you. I think that it is generally conceded that United States macroeconomic policy, which essentially means monetary policy, has been quite successful since the beginning of the last two recoveries [ 1983 and 1991] under both Chairman Volker and Chairman Greenspan. I think it could be said, without risk of contradiction, that our Federal Reserve has the best performance record in recent years of any of the G-7 central banks. What have they done? I think it can essentially be said to be fine tuning of monetary policy by the Federal Reserve, using the target Federal Funds rate as an operating tool. They have had as their objective a pragmatic combination of economic business cycle growth in recoveries, and inflation stability. On both of those counts, they have pretty much succeeded. We will see tomorrow if they make another move to tighten. I suppose it will be the usual Greenspan one-quarter percent, if anything. The situation has certainly been benign for this sort of policy.

There is an interesting and controversial question as to the existence of the NAIRU [Non-Accelerating Inflation Rate of Unemployment]. It is an ugly acronym that I accused Franco of inventing, but he says that I did it. I doubt that. Whatever is the

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