What Should Central Banks Do?

1. What beneficial outcomes are expected if central banks adhere to Mishkin's seven guiding principles?

2. What arguments does Mishkin offer to support his claim that central banks should focus on long-run stability?

3. What examples of explicit nominal anchors does Mishkin provide? What are the arguments for and against the use of a nominal anchor in policymaking?

4. Distinguish between goal and instrument independence. Why should central banks have the latter but not the former?

5. Why is central bank accountability desirable? How can it be established and maintained?

6. What objectives does a central bank have, and what tradeoff does it face, when it acts as a lender of last resort?

7. Which of Mishkin's criteria for judging central bank performance does the Fed meet? Where is it found lacking?

8. What main problem with the Fed's current institutional framework and operating procedures does Mishkin identify? How would he remedy it?

Source: "What Should Central Banks Do?" Fredric S. Mishkin, Federal Reserve Bank of St. Louis Review, 82, 6, November/December 2000, 1-13.