This paper focuses on a particular force that may help account for the qualitative changes in monetary policy across these periods. This force is the tendency of the Fed to act as if it were penitent when critics successfully argue that “bad outcomes” are a product of Fed “mistakes.” The description of past policy as having involved mistakes is a staple in the literature discussing Federal Reserve actions.1 Critics who seek to blame the Fed for bad outcomes typically go beyond saying that a particular policy move was unwise. Rather, they tend to argue that a particular pattern of Fed behavior is responsible for a series of unwise policy moves, and it is this pattern that they paint as being mistaken. The Fed then tends to become averse to this, now successfully vilified, pattern of behavior.
I think that all organizations act this way. When something bad happens, the organization goes overboard to make sure that it does not happen again. This may or not be constructive, given all of the potential bad things that might happen. Fits in with “fighting the last war” syndrome.
From a conference on the Fed’s 100th anniversary. Other papers here, and also a speech from Ben Bernanke.