United States monetary policy : a forty years analysis 1970 – 2012 -

Abstract

Analyzing United States economy is not only about a single country; it is about seeing the effects and the interactions that every single macroeconomic movement of the world’s largest economy can be spread to every nation. The economic steps taken by the most important financial center, with the world predominant currency and the second most important trade center need to be taken into consideration by every economy. U.S. like every other economy, experienced several periods of instability and recessions, the first and most memorable one until 2008 was the stock market crash in 1929 known as the great depression. Although still occupying the higher place in the economic podium, the hegemony of U.S. is being gradually reduced especially after the Sub-prime crisis in 2008 and the emergence of new economic global players like Japan and China, with an important contribution to the world growth. Yet, Fed's permanent goal is to sustain economic growth in the United States, and the U.S. monetary policy is the most important tool used to achieve it. However, it is normal to question monetary operations during tragic developments of the economy: several discussions about the Fed's operations were raised, especially after the Dot-Com and the Sub-Prime crisis. This thesis mainly aims to analyze U.S. monetary policy for the past forty years. It will depict three different periods following the macroeconomic environment of instability and recessions that United States experienced from 1970 to 2012. Chapter I give a general introduction of the thesis topic. Chapter II provides a literature review of U.S. monetary policy and its evolution the past 40 years. In Chapter III, we will briefly explain the history and importance of money and talk about the transmission mechanisms of Monetary Policy. Recent and current stance of monetary policies will be discoursed while focusing on the Federal Reserve roles and proposals in the last forty years. Information about recent crisis will be provided and the monetary policies appli