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Wednesday, August 17, 2011

Richard Green: I am a Big Fan of Stein's work

Richard Green says I should support Jeremy Stein's appointment to the FOMC (this also gives me a chance to note that Richard Clarida has removed himself from consideration):

Jeremy Stein for Fed Governor, by Richard Green: Mark Thoma writes that the administration is considering nominating Richard Clarida and Jeremy Stein for the Federal Reserver Board. He cites an encouraging Clarida speech, but writes, "I know less about Stein, so I'll withhold judgment for the moment."

Personally, I am a big fan of Stein's work. The shortest way to explain why is to list the titles of his five most cited papers:

  • Herd Behavior and Investment
  • A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets
  • Rick Management: Coordinating Investment and Financing Policies
  • Bad News Travels Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies
  • Internal Capital Markets and the Competition for Corporate Resources.
Stein has spent his career trying to figure out how capital markets really work instead of pledging fealty to models that don't work very well. I can't think of a better intellectual qualification for a Federal Reserve Board member.

I have done a bit of reading since, and I agree.

Thinking of the Fed's recent commitment to keep interest rates low though mid-2013, the membership rotates among the regional Feds every January. Will changes in the composition of the committee make any difference? If you look at the composition of the FOMC next year (it changes every January), not much will change. Presently the regional bank representation is (ignoring New York since it doesn't change, the D, N, SH, and H designations stand for dove, neutral, soft-hawk, and hawk, and are taken from here):

Chicago - Evans (D)
Philadelphia - Plosser (H)
Dallas - Fisher (H)
Minneapolis - Kocherlakota (SH)

Come January it will change to:

Cleveland - Pianalto (N)
Richmond - Lacker (H)
Atlanta - Lockhart (SH)
San Francisco - Williams (D)

Most of these are a wash:

Williams for Evans (D for D)
Lacker for Fisher (H for H)
Lockhart for Kocherlakota (SH for SH)
Pianalto for Plosser (N for H)

Pianalto for Plosser should tilt the Committee a bit toward easing, but for the most part the hawkishness/dovishness of the FOMC won't change all that much. Thus, if the committee is going to change noticeably any time soon, it will have to come from new appointments rather than the rotation of the regional Fed presidents. But with new appointments all but blocked, especially those that would lean toward dovishness, that's unlikely.

    Posted by on Wednesday, August 17, 2011 at 11:34 AM in Economics, Monetary Policy | Permalink  Comments (7)


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