Capital Market Flows and Federal Credit Institutions
It is clear that elected officials are highly constrained by monetary policy institutions. The absence of direct control over instruments and outcomes is the result of a mix of formal and informal constraints selfimposed by Congress and generated by the central bank. Both precise macroeconomic manipulation and direct control over the allocation of capital are foreclosed by central bank autonomy. Innovations in federal credit institutions outside of the control of the central bank have nevertheless permitted elected officials to direct capital to fairly specific classes of borrowers. Federal credit programs satisfy demands for credit from a number of categories of borrowers and enable elected officials to fulfill a number of objectives. Federal credit subsidies and guarantees partially insulate the home-building industry from cyclical fluctuations in the supply of credit, preserve bank credit to meet the demands of small business enterprise, make bank credit available for state and municipal governments, and maintain the price of government securities. Since investigation of the politics of monetary policy typically focuses on macroeconomic outcomes, the broader set of capital market outcomes are overlooked. These distributive outcomes motivate government intervention in capital markets and oversight of monetary policy choices. Monetary policy institutions have only created weak obstacles for elected officials to influence distributive outcomes.