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Economic Quarterly

Winter 2004

Macroeconomic Principles and Monetary Policy

J. Alfred Broaddus, Jr.

Using publicly available transcripts of FOMC meetings, Richmond Fed President Al Broaddus illustrates how he employed analytical macroeconomic principles on three occasions in the Open Market Committee. In a 1995 debate on inflation targeting, he argued that explicit targets help anchor price expectations and so enhance the Fed's ability to offset real disturbances without arousing fears of inflation or recession. In a 1994 discussion of foreign exchange intervention, he held that the Fed should avoid all attempts to influence the external value of the dollar since such attempts require policy actions that cast doubt on the Fed's commitment to price stability. And in a 1997 discussion of the implications of rising productivity growth for interest rate policy, he observed that the Fed must raise the real rate (the relative price of consumption tomorrow in terms of consumption sacrificed today) to induce consumers to shift their purchases to the future when goods, rendered abundant by accelerated productivity, will be cheaper than they are today.

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