Wednesday, June 12, 2013

Academic economics at the Fed

This story from Reuters describing Federal Reserve Governor Janet Yellen as "by far the most likely candidate to replace Ben Bernanke when his second term" made me wonder if there has been a permanent change in the job requirements for the Fed Chairmanship.  Specifically, if Yellen does succeed Bernanke, the Fed will have its second leader in a row whose prior career was as a highly successful academic economist: Bernanke's Fed tenure was preceded by many years at Princeton, where he was one of the most prominent research economists in the world, and Yellen spent many years as a world-renowned professor at UC-Berkeley.  Prior to Bernanke, Fed chairmen were (almost?) exclusively from Wall Street or Washington rather than the ivory tower.

This new-found fondness for academic economists and/or non-academic economists who do academic research, is not reserved to the top job at the Fed.  Over the past 15 or so years, at any time, one or two Fed governors have been research economists, as have several heads of the Fed's regional banks. One of the earliest was my previous boss, Bill Poole, who was president of the St. Louis Fed from 1998 to 2008 after a prominent career at Brown University.

According to the Wu-index produced by RePEc, the current membership of the FOMC (Fed governors plus presidents of the 12 regional Feds) includes eight people who are ranked among the top 1.5 percent or so of economists in terms of their academic research.  In addition to Bernanke and Yellen, the top 1.5 percent includes Fed governor Jeremy Stein and Fed presidents Charles Plosser, John Williams, Eric Rosengren, Charles Evans, and Narayana Kocherlakota.  Two other Fed presidents, James Bullard and Jeffrey Lacker, are also successful research economists, although they're not quite in the same league as their colleagues: Bullard's research puts him in the top 8 percent of research economists and Lacker's research record is ranked highly by several other criteria in RePEc.

If the search is expanded to include all Fed economists, not just FOMC members, 115 Fed economists are listed among the top 8 percent of academic researchers.  [Note that RePEc refers to its list as the top 5%, which a misnomer because it includes 2,892 authors out of the 36,221 registered with the service.  It's just that 1,310 of them are tied for 1,583rd place.]  Here is the list of these 115, which includes only economists listed in RePEc whose primary position is within the Fed system. 

I don't know for sure whether it is a good or bad thing that the Fed has a large number of economists who are successfull at publishing in academic journals.  Perhaps it's good that policymaking has the input of so many who are at the frontiers of economic research.  But that assumes that the frontier of academic research is actually relevant (and beneficial) for policymaking.  After all, "academic" is commonly used as a pejorative to suggest that something is "(t)heoretical or speculative without a practical purpose or intention."