Making Federal Reserve Monetary Policy Transparent and Accountable
Round 1
Reviewer 1 Report
Comments and Suggestions for AuthorsThere is much to like in this paper, because it discusses important topics in monetary policy research and methodology. That said, some of the language is very loose and many assertions are poorly documented or worked out for this reviewer's taste. For example, in the first sentence, the author claims that "central bankers project the self-confident appearance of being in control of the economy." I don't believe very many central bankers claim to be in "control" of the economy. They might claim they understand it's dynamics or where it might be headed in the next quarter or two.
Shortly thereafter, the author says that "central bankers should be able to explain what macroeconomic variables they control and how they exercise that controls." Regarding the former, these are spelled out pretty well in the annual Statement on Longer-Run Goals and Strategy. Regarding the latter, this is nearly impossible because, conceivably, there are 19 different models on the FOMC. Certainly, Board staff and many FOMC participants may use FRBUS to formulate their analysis of the economy and their preferred policy path, but that only magnifies the problem if they agree with some aspects of the Board staff's analysis and disagree with other aspects.
Then, a little while later, the author says that "transparency is required in a democracy." Maybe, but the democracy seemed to survive the less-than-transparent Volcker and Greenspan regimes pretty well. If only we could go back to the Greenspan standard!
The author claims that "to achieve it's objective of maximum employment, it must coordinate the hiring and firing decisions of firms." I don't understand how the central bank can even begin to do this.
One of the author's key points is that monetary policy is inherently fragile because they "have never had to make explicit their understanding of the general structure of the economy." Again, the FOMC annually issues a statement on longer-run goals and monetary policy strategy. The statement is the result of a consensus of 19 FOMC members. The author wants to achieve the impossible, in my view (consensus on both a policy rule and a model of the economy). Greenspan and Volcker were very much opposed to rules. Bernanke got his 2% inflation target. It's hard to see how any kind of formal rule (whether a Taylor Rule or first difference rule) would ever be adopted. So, in that sense, the author--and he is not alone--is forever chasing a chimera.
On page 3, the author says "nothing in a rule tells the FOMC what the future will bring." This is a bit simplistic, because an action suggested by a rule implies a future outcome conditioned on the decision embedded in the rule.
On page 4, the author says that "a model is required for understanding the cause and effect relationships in the economy." And yet, Greenspan was regularly criticized for employing a black box model of policy. Moreover, Alan Meltzer claimed in his two volume Fed History book that the FOMC in the 1960s and 1970s employed the wrong model. So, having a model may be necessary, but certainly not sufficient for producing the outcomes the author wants.
On pages 5-9, the author's discussion of Taylor rules in level and difference form is very opaque. Here is where some explicit modeling is needed. (e.g., "with a first-difference rule, monetary policy stabilizes the economy's rate of resource utilization.") He claims that one (level) is consistent with a nonmonetary character of inflation, while the other (difference) is consistent with a monetary character of inflation. I don't understand the discussion that follows. In 2020-2021, the Fed purchased a little more than half of all newly issued Treasury debt; it was the classic helicopter money drop. And then in early 2022, the FOMC began to fight the inflation it helped create. So, the Fed was both an inflation creator and an inflation fighter. Maybe that makes the author's case for why a rule is necessary, but in a war, nobody stops to ask what's the end game. At the end of the day, policymakers like having discretion--that may be a good thing or bad thing, but that's the world we live in. I don't see it changing.
Sections 5-6 seem like a needless departure from the discussion at the end of Section 4 and Section 7 (choosing a policy rule). While interesting, they don't add much to the discussion and I would delete these two sections.
In the discussion about the 2008 recession and the Fed's response, the author says that "monetary policy had to have been contractionary." In what sense? Both the nominal and real fed funds target rate fell sharply from August 2007 to July 2008. Indeed, the real fed funds target rate was negative from February 2008 through November 2008, and the FOMC was using balance sheet policy aggressively. Later on he says that their was a big negative wealth shock. So, was monetary policy responsible for driving the economy in the ditch, or was it a big negative wealth shock (as well as the lagged effects of a big oil shock in 2007-2008)? I would argue that it was the latter. But if the author believes otherwise, then please provide some evidence.
Finally, and in this vein, on page 15 the author says that the "the FOMC was slow to lower the funds rate after the April 2008 meeting despite continued worsening of the economy." Yes, but the FOMC had already reduced the policy rate by 325 basis points since August 2007. Moreover, the Fed was proceeding cautiously because of an oil-price spawned acceleration in inflation from March 2008 to July 2008. Once inflation began to drop sharply in late summer/early fall 2008, the Fed moved the policy rate to the ZLB rather quickly.
Author Response
Thank you for your thoughtful comments. Enclosed are my responses.
Author Response File: 
Author Response.pdf
Reviewer 2 Report
Comments and Suggestions for AuthorsPlease see the attachment.
Comments for author File: Comments.pdf
Author Response
Thank you for your thoughtful comments. Enclosed are my responses.
Author Response File: Author Response.pdf
Reviewer 3 Report
Comments and Suggestions for AuthorsI truly enjoyed reading this manuscript. The author shows a deep knowledge of the subject, making an interesting argument about the need for greater model-based transparency at the Federal Reserve. The historical context and the revival of the Keynesian-Monetarist debate are particularly valuable contributions.
However, the paper's current tone and style are more characteristic of an op-ed or policy essay than an academic paper. The narrative is often polemical, relies on future possible scenarios, and uses journalistic style details. It is the journal's choice whether this specific, persuasive style is acceptable for publication as is. If the goal is a traditional academic publication, the paper requires significant restructuring to shift the tone from opinion to objective analysis.
If the manuscript is invited for revision, the comments below may be useful to the author(s).
- The current title implies a general theoretical framework applicable to central banking globally. However, the content is exclusively focused on the United States economy and the specific institutional history of the Federal Reserve. Thus, I strongly suggest revising the title to reflect this specific geographical and institutional scope.
- The abstract is excessively long and narrative, reading more like an introductory paragraph. It should be condensed and focus on the paper's research question, methodology, key arguments, and conclusions. The separation between the abstract and the introduction needs to be corrected.
- The paper begins its substantive argument in Section 1 by referencing the "current situation (July 2025)" without providing immediate context. This is confusing for the reader. While later text refers to tariff policy and fiscal deficits, the initial mention is too vague and assumes the reader is already familiar with the specific economic conditions of this future date.
- Section 6 relies heavily on a specific political scenario involving President Trump and Chair Powell in mid-2025 . In an academic journal, this detailed political commentary may feel more journalistic than analytical.
- The author(s) refer(s) to his/their own work frequently . While the expertise is evident, the author(s) should ensure(s) the paper engages with a broader range of literature.
- The paper's style assumes a high degree of reader familiarity with the specific operational details and historical debates of the Federal Reserve (e.g., the "two go-arounds," the specifics of the Bernanke-era credit policies, Taylor rule specifications). While appropriate for a specialized audience, this may limit the paper's accessibility to a broader readership in financial management.
Author Response
Thank you for your thoughtful comments. Enclosed are my responses.
Author Response File: Author Response.pdf
Reviewer 4 Report
Comments and Suggestions for AuthorsPlease see the review report
Comments for author File: Comments.pdf
Author Response
Thank you for your thoughtful comments. Enclosed are my responses.
Author Response File: Author Response.pdf
Round 2
Reviewer 1 Report
Comments and Suggestions for AuthorsI have no further comments, and I am satisfied with the revision.
Reviewer 2 Report
Comments and Suggestions for AuthorsThere is a very serious and thorough effort from the author in addressing comments and concerns, as well as in revising the whole paper. If the journal accepts such kind of paper, which the author claims to be a "viewpoint" then, the work done seems to be satisfactory at this time. This is a new type of research that I have never dealt with before, but I am impressed thereof.
Reviewer 3 Report
Comments and Suggestions for AuthorsThank you for revising the manuscript; the shift to a more objective, academic tone and structure is much improved, and I have no further comments.
