1. 1
BOOK REVIEW
R. W. Hafer (2005). The Federal Reserve System: An Encyclopaedia (Westport, CT &
London, England: Greenwood Press), pp. 451, ISBN 0-313-32839-0
INTRODUCTION
What is the Federal Reserve System?
That is the question which this book attempts to answer. But, unlike most books that
provide a history of the Federal Reserve System in a narrative form, this book has
the structure of an encyclopaedia. R. W. Hafer, an economist at Southern Illinois
University, summarizes an enormous amount of information about the Federal
Reserve System in alphabetical sequence here without losing out on the narrative
thread that arises out of the discursive construction of knowledge in the social
sciences. Hafer does this by cleverly building in a number of mini-narratives on a
range of topics in monetary policy that are covered here including a comprehensive
history of the Federal Reserve’s role in making monetary policy in the United States
in his introduction. Most readers are not usually used to, or even expected to, read a
reference book in its entirety. But, that is not the case with this book for a number of
reasons; the most important of these reasons is the sheer readability of Hafer’s style.
I would like to state at the outset of this review that this is the best book that I have
ever read on the Federal Reserve System. I have spent more than a year doing so
intermittently without expecting to be able to review it later. This encyclopaedia has
been an indispensable tool in my attempts to teach myself the rudiments of
monetary policy, monetary history, and in learning to appreciate the systemic
dimensions of the Federal Reserve. That is my main reason for reviewing this book; I
not only hope to share my sense of excitement in having got hold of this invaluable

2. 2
book, but in explaining how it can provide readers interested in monetary policy
with a lucid point of entry into the history, structure, and functions of the Federal
Reserve System.
The most important point that Hafer makes here is that the U.S. Federal Reserve is
not just a bank with an imposing façade in Washington DC; but, that it is a nation-
wide ‘system’ comprising twelve additional Reserve Banks. This book first appeared
in 2005 and, needless to say, I look forward to the revised edition that will cover the
achievements of the Federal Reserve during the administrations of Ben Bernanke
and Janet Yellen.
THE SCOPE OF THE ENCYCLOPEDIA
Hafer has written this reference book on the Federal Reserve System in its entirety;
that in itself is a formidable scholarly undertaking.
Even editing a book like this with a number of contributors will involve many years
of scholarly effort and is not easy to pull off; but to write a book like this is even
more difficult. The first thing that I did when I opened this book was to look up the
list of contributors in the Contents, but there were none. It was Hafer’s undertaking
all the way through. It was the fact that this is the work of a single author that gave

3. 3
me the determination to read it as though it were a narrative history. The fact that
Hafer is not only an academic teaching monetary policy, but that he served for ten
years as a researcher at the Federal Reserve Bank of St. Louis is one of the main
attractions of this book. For those who may not know, the research division of the St.
Louis Fed is the most highly regarded in the Federal Reserve System; most of the
research on ‘monetarism,’ for instance, was innovated at the St. Louis Fed under the
leadership of Homer Jones. Furthermore, there is an important difference between
doing ‘research in the Federal Reserve’ and doing ‘research about the Federal
Reserve.’ The research divisions of the Reserve Banks in the Federal Reserve System
have taken on board both of these aspects of monetary policy research. Reading a
book like this then will sensitize students of monetary policy and institutional
economics to both ‘think like the Fed’ and ‘think about the Fed.’ Furthermore, it helps
us to situate the difference between academic approaches to monetary theory and
the Fed’s approach to monetary policy without taking the Fed’s achievements in this
area for granted. In fact, integrating what academics ‘know’ about monetary theory
and what policy-makers ‘do’ in monetary policy is one of the most important things
that researchers should attempt in order to make theoretical input from economics
useful for policy-makers. Any reader of this book will come away with the
impression that even though the solid presence of the Fed can be taken for granted
now; it took a long struggle to make an effective case for the establishment of the
Federal Reserve System in the history of the United States. The encyclopaedia begins
with an introduction that puts monetary policy in a ‘historical perspective,’ before
explaining the meanings of all the technical terms used by central bankers. These
terms also include brief profiles of important central bankers and economists who
have helped to shape monetary policy in the United States since the founding of the
Fed. There are also three appendices at the end comprising the text of the Federal
Reserve Act of 1913; information on those who have served in the Board of the
Federal Reserve from 1913-2004; and the alphabetical list of regulations that are
relevant to making sense of what the Federal Reserve does within the banking and
financial systems. The entries in the main part of the encyclopaedia are accompanied
by suggestions for ‘further reading’ which I found extremely useful because it

4. 4
includes research done by the research divisions of the Reserve Banks (in addition to
what is available in the academic literature on monetary theory and monetary
policy).
THE FED & THE BROADER ECONOMY
The Federal Reserve is the fourth and youngest branch of the U.S. government; it
was only established in 1913-14 after the passage of the Federal Reserve Act by the
U.S. Congress in 1913. Not much was known about the Federal Reserve in its early
history since it keeps a low profile except when it meets to decide on the ‘federal
funds rate,’ or when it is trying to set the economy right after a recession, depression,
or a financial crisis. The Fed is however always in the news nowadays since the U.S.
economy has not completely recovered from the financial crisis of 2007-08. This is
therefore an opportune moment for not only students of macroeconomics, but also
for those enrolled in MBA programs to read up on the Federal Reserve System.
While many students of business and management may not realize this as beginners,
the decisions taken by the Federal Open Market Committee (FOMC) in the pursuit of
‘conventional’ and ‘unconventional’ monetary policy actions will have a huge
impact on not only the financial system but on the ‘broader economy’ as well. It is
therefore incumbent on policy makers and market participants in the broader
economy to educate themselves on ‘what the Fed is’ and ‘what the Fed does’ in its
attempts to regulate the supply of money in the U.S. economy.
It is important to know what tools the Federal Reserve has at its disposal, and what
the broader implications are when the FOMC increases or decreases interest rates. It
is also important to appreciate the differences between the scale-and-scope of fiscal

5. 5
policy and monetary policy since the layperson is given to conflating these
approaches in regulating the macro-economy. There is also a pressing need to
appreciate the role played by the institutional autonomy of the Federal Reserve since
it is considered ‘independent’ of the other branches of government after the Fed-
Treasury Accord of 1951. This level of institutional autonomy is not a characteristic
feature of central banks everywhere in the world. Most central banks in developing
countries are under constant pressure to tweak interest rates from special interest
groups or even to ‘monetize the budgetary deficit.’ So unlike these central banks, the
Federal Reserve can conduct monetary policy without having to take the needs of
fiscal policy into account. These are however powers that the Federal Reserve has
sought to use wisely because it knows that the credibility of central banks will be
challenged if it leads to policy actions that are not widely understood in the broader
economy. That is why the Federal Reserve has set out to formulate and implement a
communications policy and promote financial literacy under the chairmanship of
Ben Bernanke and Janet Yellen (in addition to its on-going efforts to stabilize the
financial system in the wake of the recent crisis). An encyclopaedia like this will not
only go a long way in educating stakeholders on what monetary policy is, but can
also make an effective case for letting central bankers get on with the onerous
responsibilities that they are being increasingly entrusted with in different parts of
the world.
SHIVA KUMAR SRINIVASAN