Chapter 14
Central Banks
Chapters 14–17 explore in detail how monetary policy is conducted. Although most professors
covering monetary theory will want to include much of this material in their courses, later
chapters on monetary theory do not directly depend on Chapters 14–17, so they can be skipped
without loss of continuity. Other professors covering monetary theory may prefer to teach this
material after they have taught the chapters on monetary theory.
To help the instructor spice up the discussion of the Federal Reserve, I try to provide an inside
view of the Fed by including material on such topics as the political genius of the way the
Federal Reserve was set up to preserve its independence, the special role of the Federal Reserve
Bank of New York and the research staff in the Federal Reserve System, how a typical FOMC
meeting is conducted, the evolution of the Fed’s communication strategy, how Ben Bernanke
and Janet Yellen’s style differs from that of the former Chairman of the Fed, Alan Greenspan,
and how the foreign exchange and open market desks at the Federal Reserve Bank of New York
operate. To feature this new material I have included some of it in a set of special interest boxes,
titled “Inside the Fed,” which provide insights on how the Federal Reserve System operates
although they are based on information that is entirely in the public domain.