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March/April 1992, 
Vol. 74, No. 2
Posted 1992-03-01

Monetary Policy in the Great Depression: What the Fed Did, and Why


David C. Wheelock examines the extent to which the Federal Reserve System's organization affected policy during the Great Depression. Some authors contend that the Fed’s organization caused it to be more receptive to private interests—or to the interests of policymakers wishing to extend their bureaucratic domain—than to the public’s interests. Others argue that leadership changes at the onset of the depression put authority into the hands of inexperienced officials who failed to understand the appropriate policies to counteract the depression. Wheelock finds, however, that organization affected policy little during this episode. Rather, the Fed’s policies can be attributed largely to continued pursuit of a procyclical policy rule and to the gold standard regime, which proved deflationary.