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Tuesday, February 25, 2014

Legal Scholarship and Monetary Policy

This will be good for my monetary theory and policy class:

...should scholars refrain from writing about legal issues in macroeconomics, specifically monetary policy?

One thinks of monetary policy decisions—whether or not to raise interest rates, purchase billions of dollars of securities on the secondary market ("quantitative easing"), devalue or change a currency—as fundamentally driven by political and economic factors, not law. And of course they are. But the law has a lot to say about them and their consequences, and legal scholarship has been pretty quiet on this.

Some concrete examples of the types of questions I’m talking about would be:

  • Pursuant to its dual mandate (to maintain price stability and full employment), what kinds of measures can the Federal Reserve legally undertake for the purpose of promoting full employment?  More generally, what are the Fed’s legal constraints?
  • What recognition should American courts extend to an attempt by a departing Eurozone member state to redenominate its sovereign debt into a new currency?

When it comes to issues like these, it is probably even more true than usual that law defines the boundaries of policy. Legal constraints in the context of U.S. monetary policy appear fairly robust even in times of crisis. For example, policymakers themselves often cite law as a major constraint when speaking of the tools available to the Federal Reserve in combating unemployment and deflation post-2008. Leading economics commentators do too. Yet commentary on “Fed law” is grossly underdeveloped..., legal academics have largely left commentary on the Fed and macroeconomics to the econ crowd....

[There's quite a bit more in the full post.]

    Posted by on Tuesday, February 25, 2014 at 09:22 PM in Economics, Monetary Policy | Permalink  Comments (9)

          


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