2013 will mark the 100th anniversary of the Fed. What have we got for our money? Surprisingly little. Inflation is clearly higher in the post-Fed era as is price variability. Deflation is lower, although there is nothing to fear from secular deflation. Barsky, Miron, Mankiw and Weil did find that the Fed dramatically reduced seasonal interest rate variability. I have always found this result puzzling–money is easy to store and seasons are predictable so why aren't interest rates smoothed without a very elastic money supply? In anycase, it's not obvious that smoother rates are better, although there could be small gains.
The big question, of course, is the variability of output. It used to be thought that output variability had decreased post-WW II but, as I pointed out in an earlier post, Romer's work (see also Miron) has shown that when measured on a consistent basis there is no substantial decline in volatility comparing pre-WW 1 to post-WW II. (Note that is generously giving the Fed a pass on the Great Depression!)
Selgin, Lastrapes and White have an excellent review of the empirical literature on inflation, output and other variables and conclude:
The Federal Reserve System has not lived up to its original promise. Early in its career, it presided over both the most severe inflation and the most severe (demand-induced) deflations in post-Civil War U.S. history. Since then, it has tended to err on the side of inflation, allowing the purchasing power of the U.S.dollar to deteriorate considerably. That deterioration has not been compensated for, to any substantial degree, by enhanced stability of real output. Although some early studies suggested otherwise, recent work suggests that there has been no substantial overall improvement in the volatility of real output since the end of World War II compared to before World War I. A genuine improvement did occur during the sub-period known as the "Great Moderation." But that improvement, besides having been temporary, appears to have been due mainly to factors other than improved monetary policy. Finally, the Fed cannot be credited with having reduced the frequency of banking panics or with having wielded its last-resort lending powers responsibly.
The Fed has surely been among the better of the central banks which would make it interesting to run a similiar analysis in other countries.