Governor Christopher J. Waller of the Federal Reserve Board gave a speech at a conference, remembering and teaching on Bennett McCallum, a great American economist.
Waller's comments were heavily influenced by Ben McCallum's article "Recent Developments in Monetary Policy Analysis: The Roles of Theory and Evidence," which was published in 1999 and reviewed 25 years of economic policy. The time span covered by McCallum's study, 1973–1978, encompassed both inflationary and deflationary periods, both of which signified significant advancements in economic policy. Our perspective on monetary management has altered multiple times as a result of unanticipated developments in the economy. Some examples of these developments are the introduction of flexible exchange rates, the first oil shock, and Paul Volcker's implementation of a stringent monetary policy. By the time McCallum completed his thesis in 1998, the Federal Reserve had already garnered significant public esteem and gratitude for guiding us through challenging economic times.
Since McCallum's analysis was published, there have been significant alterations in the monetary policy of the United States. The years 2007, 2012, and 2020 all saw significant shifts. In 2007, the FOMC began presenting the public with a quarterly Summary of Economic Projections, which included information on the projections of meeting participants. This practice continues to this day. Because of the accurate forecasts that this organization provided for the economy, the general public's faith in the nation's financial institutions increased. The Federal Open Market Committee (FOMC) started issuing an annual report in 2012 under the title Long-Term Objectives and Monetary Policy Strategy. This move was made to promote transparency. The target for the annualized rate of inflation was derived from this and set at 2%. By the year 2020, the FOMC has revised their previous consensus statement to include even more information about their dual-mandate and price stability goals. This happened at a time when the economy was already in a bad place due to the ongoing pandemic.
Because of the commitment of central banks to keeping inflation at a rate of 2%, there has been an improvement in the effectiveness of economic policy. The Federal Open Market Committee (FOMC) has made it abundantly apparent that it does not intend to achieve chronically high levels of real output through bouts of loose monetary policy. Instead, the FOMC intends to create a long-run inflation target.
