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When Miller failed to curtail the weakening economy by summer of 1979, President Carter transferred the Federal Reserve Board’s chairmanship to Paul Volcker. ...
Analysis of Volcker’s Tight Monetary Policy
Paul Volcker, being a banker, was really a hardliner when it comes to inflation. ... As contrasted with Miller’s policies, Volcker allowed the federal funds rate band to widen and let the rates fluctuate freely. ...
Another important monetarist belief that probably influenced Volcker’s policies is the monetarist framework that money stock (M) is a product of a multiplier (m) and the monetary base (H) [M=mH]. ... Thus, the Fed under Volcker, believed that by enforcing tight money policy and reaching the targets, they could have control over inflation and create only temporary and negligible effects on the economy. Volcker targeted to slow down non-borrowed reserves which can effect a low growth in monetary aggregates through the deposit multiplier and in the end hit inflation targets. ... This leads us to look at the real effects of Volcker’s tight money policy and the limits on how far should an economic policy go in terms of reducing inflation and finally, to review the merits of inflation in maintaining a balanced economy. ... Also, Volcker’s case proves that severely reducing inflation could be very costly even at the expense of citizens being jobless. ...
Paul Volcker’s 1979 policy switch can be considered effective because it was able to meet its ultimate goal of reducing inflation rates. ...
The policy of Volcker is premised on a tight linkage between the stock of money and the flow of spending (GNP).
Approximate Word count = 1614
Approximate Pages = 6.5
(250 words per page double spaced)
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