Abstract
In this paper, we look at the dual mandate
(price stability and maximum employment) as policy objectives of the central
bank (the Fed) and we test mostly the effectiveness of policy instruments on
these two ultimate objectives. We start from 1978 to 2008 and then, from 2009
(the year of major changes in monetary policy) to present to measure
statistically the capability of the Fed to improve the economy’s cycle and
citizens’ wellbeing. OLS and VAR models and at the end some measurements of
correlations and causality are used to determine the effectiveness of the
policy tools on the two objective variables, price and unemployment. The
empirical results show that prices have been drastically affected (inflation
and bubbles) by this expansionary monetary policy for so many years, but
employment has not been improved. In general, our public policies have
generated a social cost that exceeds the social benefits.
JEL
classification numbers: E52, E58, E4, E44, C52, D6.
Keywords:
Monetary Policy, Central Banks and Their Policies, Money
and Interest Rates, Financial Markets and the Macro-economy, Model Evaluation
and Testing, Social Welfare.