Central Banking in Theory and Practice

'[Blinder's]. . . reflections on the meeting-place of academic economic theory and central banking practice are extremely interesting, well argued, provocative, and deep.' -- J. Brad De Long, Associate Professor of Economics, University of California, Berkeley Alan S. Blinder offers the dual perspective of a leading academic macroeconomist who served a stint as Vice-Chairman of the Federal Reserve Board--one who practiced what he had long preached and then returned to academia to write about it. He tells central bankers how they might better incorporate academic knowledge and thinking into the conduct of monetary policy, and he tells scholars how they might reorient their research to be more attuned to reality and thus more useful to central bankers. Based on the 1996 Lionel Robbins Lectures, this readable book deals succinctly, in a nontechnical manner, with a wide variety of issues in monetary policy, including the goals of monetary policy, the choice of monetary instrument, the rule-versus-discretion debate, suggested remedies for the alleged problem of 'inflationary bias,' central bank credibility, arguments for and against central bank independence, and the interplay between the central bank and financial markets. The author examines each issue from the point of view of both an academic economist and a practicing policymaker--calling attention to the differences and similarities of perspective along the way. The book also includes the author's suggested solution to an age-old problem in monetary theory: what it means for monetary policy to be 'neutral.'