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"A Comparison of Five Federal Reserve Chairmen: Was Greenspan
the Best?" 2007, The B.E. Journal of Macroeconomics, Vol. 7:
Iss. 1 (Contributions), Article 12.
This paper examines the performances of the past five Federal Reserve
chairmen using optimal control techniques and a macroeconometric model.
Each chairman is evaluated in two ways. The first way is comparing
the actual performance of the
economy under his term relative to what the performance would
have been had he behaved optimally. Comparing chairmen only on the
basis of the actual performance of the economy is not appropriate
because it does not control for different exogenous-variable values
and shocks that the Fed has no control over.
This comparison is done for a wide range of loss functions.
It does not assume that the chairman necessarily behaved by
minimizing a loss function; it just compares his actual behavior to what
he could have done had he minimized a particular loss function.
The second way, on the other hand, assumes that each chairman minimized
a loss function, and it chooses for each chairman which of the various
loss functions tried comes closest to matching the actual values of
the control variable to the optimal values.
A summary evaluation of each chairman is presented in Section 6.