The Federal Reserve's Dual Mandate Conflict

Studer, Grace

Publication

The Federal Reserve's Dual Mandate Conflict

Studer, Grace

Date

2018

Additional date(s)

2018-05-19

Abstract

The purpose of this research is to determine if the US Federal Reserve's decision to implement a dual mandate is the most efficient central bank structure. While most international central banks have a single price stability mandate, the US Federal Reserve has a dual mandate - price stability and maximum employment. This study begins by examining literature regarding the economic theory, development, and controversy of the dual mandate. The debate is far from new, however this paper provides the first analysis involving comparisons of single and dual mandate banks as a group. To measure the efficiency of a bank in reaching its price stability mandate, inflation rate variances and target accuracy were calculated. Similarly, maximum employment was measured by looking at unemployment trends for dual mandate banks and comparing them to the single mandate banks, which have no explicit employment goal in their policy objectives. Overall, the results of this research show that there are no drastic differences in a single or dual mandate bank's ability to reach its stated inflation target and keep unemployment low. Therefore, since the number of mandates a central bank pursues does not hinder its ability to achieve them, it brings into question whether single mandate banks are more efficient overall as they incorporate fewer resources and efforts to achieve the same outcome.