Money, Banks and Finance in Economic Thought

Central banks' thinking at test: the unexpected birth and fate of the “Availability Doctrine

Monnet Eric, Banque de France, PSE, CPER
Clerc Pierrick, Swiss National Bank

"from inclusion in a session on macroeconomic analysis in central banks and international institutions" Our research focuses on the Availability Doctrine, which was notably developed by Robert Roosa at the New York Federal Reserve in the late 1940s. The Availability Doctrine gained wide recognition in academia in the early 1950s, particularly through hearings at the US Congress (on credit controls and monetary policy) where it was debated. The main message of the Availability doctrine was that quantities (rationing of bank assets) were much more important than prices (interest rates) for the transmission of monetary policy. Hence the term “availability” denoted the emphasis on “quantities”. It went against standard theories which focused on the money base or interest rates. It reasoned with the main concerns of policymakers at that times, that is the interaction between monetary policy and public debt management. The Availability Doctrine cannot be understood without the institutional and historical context of postwar monetary policy (which notably had to deal with a massive amount of government securities in bank balance sheets). This doctrine was not supposed to be a general and full fledge theory that could be applied in all situations. Instead, it was very context-specific and recognized as such. Moreover, even though its theoretical foundations were weak, the Availability Doctrine played a key role in showing the limits of mainstream academic models and in formulating new areas for research. As such, the historical study of the Availability Doctrine we aim to provide here is not only interesting for historians of monetary policy in the US. It is also an important, but underestimated, milestone of postwar economic thought. It also shows the limits of the usual interpretation of postwar monetary thinking as a mere fight between monetarists and Keynesians. The Availability Doctrine, as other central bank’ doctrines, cannot be understood on the basis of these usual categories

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Keywords: availability doctrine, postwar monetary thought, credit controls

Paper file