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Tuesday, February 14, 2006

The End of "disproportionate influence'' at the Fed?

Many believe that Greenspan had a "disproportionate influence'' on Fed decisions either due to superior analytical skills or a domineering personality, and perhaps a little of both. I have never believed it to be healthy for the institution to be dominated by the views of a single individual and one of the hopes is that under Bernanke such domination will diminish:

Bernanke's Fed Will Stress 'Solid' Analysis Over Personality, Bloomberg: Alan Greenspan dominated the Federal Reserve with the strength of his reputation. Ben Bernanke ... will win votes on the strength of his analysis. Power and influence are being redefined on the Fed's interest-rate committee as the Bernanke era begins. Analytical rigor and open debate may have a larger role in Bernanke's Fed boardroom than in Greenspan's, which former Vice Chairman Alan Blinder once called "autocratically collegial.''

"My guess is that the views that will win out will be those that have the most solid logical and empirical foundation, just as in academic debate,'' said Mark Gertler ... "The survival of the fittest ideas'' will be the rule under Bernanke... "It would seem to me he would be more comfortable with a freer exchange of ideas, not coming in 100 percent convinced of what should be done,'' said Robert Parry, the former San Francisco Federal Reserve Bank president who sat at the policy table with Bernanke and Greenspan from 2002 to June 2004. ...

Greenspan didn't squelch debate as chairman, Fed officials say; research flourished under him, and he "allowed for a much more open debate of ideas than has ever taken place in the Fed's history,'' said Harvey Rosenblum, executive vice president at the Dallas Fed. Even so, Greenspan's stature and forecasting skills had "disproportionate influence'' on Fed decisions, former Governor Laurence Meyer said ...

Greenspan "more or less dictates the group 'consensus,''' Blinder, now a Princeton University professor, and economist Charles Wyplosz wrote in the 2004 paper in which they described his FOMC meetings as "autocratically collegial.'' Greenspan "may begin the meeting with the decision already made.'' ...

The Fed's staff of 250 Ph.D. economists, which Bernanke has praised twice in recent weeks, may also have more influence in the new era. As a Fed governor ..., Bernanke would disregard central-bank protocol, grab a lunch tray and eat with the staff in the cafeteria. Eventually, the discussions evolved into a series of informal seminars that allowed young economists to argue their ideas before a policy maker.

Macroeconomists such as Governor Donald Kohn, 63, who has worked at the bank for more than 30 years and was a close adviser to Greenspan, and San Francisco Fed President Janet Yellen, 59, a former governor, are also likely to sway the debate, economists said. So will other regional Fed bank presidents, who can draw on their own research staffs to help mold the committee's views.

"All the reserve banks are going to be clamoring to be heard a little more,'' said the Dallas Fed's Rosenblum. ... "We try to identify the issues facing the FOMC for which our research staff can add the most value,'' said Daniel Sullivan, senior economist at the Chicago Fed. "The reserve banks provide an important independent perspective on the national economy.'' ...

    Posted by on Tuesday, February 14, 2006 at 10:35 AM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (1)


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