Shadow Open Market Committee
Encyclopedia
The Shadow Open Market Committee (SOMC) is an independent, monetarist
economic analysis committee founded in 1973 by Profs. Karl Brunner, from the University of Rochester
, and Allan Meltzer
, from Carnegie Mellon University
, named after the Federal Open Market Committee
(FOMC), of which it is often critical. Its members are drawn both from academia and the private sector.
The Committee was founded at a time when many monetarist economists believed the Federal Reserve—and the alleged dominance of new Keynesians
within the Fed—had caused a recession
by failing to keep money supply
growth steady, and advocates that the Fed change its procedures to tighten its control of M-1. Throughout the 1970s and 1980s, the Committee's biannual studies consistently blamed the Fed for contributing to the inflation
of that period. After 1982, the SOMC was critical of the Fed's return to short-term interest rate targeting, which it believed would further inflation.
The Committee also opposes the targeting of monetary policy
on the exchange rate
.
Statistical analysis of the SOMC's policy recommendations and the FOMC's actions through 1995 indicated that the SOMC had little influence on FOMC directives.
Undersecretary for Monetary Affairs Beryl Sprinkel was a long-time member of the SOMC.
There are similar shadow committees in Europe
, Latin America
, and Japan
. The SOMC is viewed as somewhat of a model for those who advocate completely non-governmental central bank
s.
Monetarism
Monetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...
economic analysis committee founded in 1973 by Profs. Karl Brunner, from the University of Rochester
University of Rochester
The University of Rochester is a private, nonsectarian, research university in Rochester, New York, United States. The university grants undergraduate and graduate degrees, including doctoral and professional degrees. The university has six schools and various interdisciplinary programs.The...
, and Allan Meltzer
Allan Meltzer
Allan H. Meltzer is an American economist and professor of Political Economy at Carnegie Mellon University's Tepper School of Business in Pittsburgh, Pennsylvania. He was born February 6, 1928, in Boston, Massachusetts...
, from Carnegie Mellon University
Carnegie Mellon University
Carnegie Mellon University is a private research university in Pittsburgh, Pennsylvania, United States....
, named after the Federal Open Market Committee
Federal Open Market Committee
The Federal Open Market Committee , a committee within the Federal Reserve System, is charged under United States law with overseeing the nation's open market operations . It is the Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money...
(FOMC), of which it is often critical. Its members are drawn both from academia and the private sector.
The Committee was founded at a time when many monetarist economists believed the Federal Reserve—and the alleged dominance of new Keynesians
New Keynesian economics
New Keynesian economics is a school of contemporary macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of New Classical macroeconomics.Two main assumptions define the New...
within the Fed—had caused a recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
by failing to keep money supply
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
growth steady, and advocates that the Fed change its procedures to tighten its control of M-1. Throughout the 1970s and 1980s, the Committee's biannual studies consistently blamed the Fed for contributing to the inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
of that period. After 1982, the SOMC was critical of the Fed's return to short-term interest rate targeting, which it believed would further inflation.
The Committee also opposes the targeting of monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
on the exchange rate
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
.
Statistical analysis of the SOMC's policy recommendations and the FOMC's actions through 1995 indicated that the SOMC had little influence on FOMC directives.
Undersecretary for Monetary Affairs Beryl Sprinkel was a long-time member of the SOMC.
There are similar shadow committees in Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
, Latin America
Latin America
Latin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
, and Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
. The SOMC is viewed as somewhat of a model for those who advocate completely non-governmental central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
s.
Current members
- Michael Bordo, Rutgers University
- Charles Calomiris, Columbia University
- Marvin Goodfriend, Carnegie Mellon University
- Gregory Hess, Claremont McKenna CollegeClaremont McKenna CollegeClaremont McKenna College is a private, coeducational liberal arts college and a member of the Claremont Colleges located in Claremont, California. The campus is located east of Downtown Los Angeles...
- Bennett McCallumBennett McCallumBennett T. McCallum is an American monetary economist. He is H. J. Heinz Professor of Economics at Carnegie Mellon University's Tepper School of Business....
, Carnegie Mellon University - Mickey Levy, Bank of AmericaBank of AmericaBank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
- Anna SchwartzAnna SchwartzAnna Jacobson Schwartz is an economist at the National Bureau of Economic Research in New York City, and according to Paul Krugman "one of the world's greatest monetary scholars"...
, NBER - Peter Ireland, Boston CollegeBoston CollegeBoston College is a private Jesuit research university located in the village of Chestnut Hill, Massachusetts, USA. The main campus is bisected by the border between the cities of Boston and Newton. It has 9,200 full-time undergraduates and 4,000 graduate students. Its name reflects its early...