Mpls Fed's new leader has Midwest economic approachby Annie Baxter, Minnesota Public Radio
St. Paul, Minn. — The Federal Reserve Bank of Minneapolis has named a University of Minnesota economist as its new president.
Narayana Kocherlakota becomes president and chief executive of the Minneapolis Fed effective Oct. 8. His predecessor, Gary Stern, has retired.
Narayana Kocherlakota was born in Baltimore, Md., in 1963, and at the precocious age of 15, he enrolled at Princeton University. He graduated four years later with a degree in mathematics, and went on to get a Ph.D. in economics from the University of Chicago.
In the ensuing years, Kocherlakota taught at a number of universities. And he's had a presence at the Minneapolis Fed since 1996, when he started work there as a regional economist. He left a couple years later, but continued a relationship as a consultant for the bank.
The Fed and other economists describe Kocherlakota as one of the most respected scholars in the field of macroeconomics, which looks at how regional and national economies work.
When it comes down to Kocherlakota's economic guiding principles, he's described as a "freshwater economist."
The so-called freshwater school of macroeconomic thought asserts that business cycles are not necessarily something the government can do anything about. Some freshwater economists say recessions are not bad -- they're just business cycles that simply need to play out.
Universities in the Midwest, including the University of Chicago and the University of Minnesota, have been closely associated with this school of thought, whereas economists at East coast, or "saltwater" institutions, see a bigger role for government intervention in the economy.
Art Rolnick, the director of research at the Minneapolis Fed, says he doubts his new boss is a purist about his water.
"I think you're going to find that Kocherlakota is going to be much more eclectic on this issue," said Rolnick, "recognizing that while there's a need for government programs and intervention, etc., that market economies have a very important role to play to promote long-term trend growth."
Rolnick says Kocherlakota will likely take on the mantle of outgoing Minneapolis Fed president Gary Stern, who was regarded as hawkish about inflation issues.
Stern also sounded an early alarm on the dangers of excessive risk-taking and bank bailouts -- known as the "too big to fail" doctrine.
Rolnick says Kocherlakota is also well-versed in the history and theory of banking crises.
"He will continue that work that Gary Stern had so prominently pursued, and that this bank has been pursuing for 20 to 30 years," said Rolnick. "The new president will be in a good position, given his background, to carry that work forward."
Rolnick says he believes he'll be able to carry on his own work on the economic value of early childhood education under Kocherlakota as well.
Having that continuity will be important, according to Jeanne Boeh, an economist at Augsburg College. She says the Minneapolis Fed president sets the tone about what research should be conducted, and that matters to the region.
"Particularly the preschool research, and some of the other regional research that the Federal Reserve has done, has been really helpful to the intellectual and policy applications for the area," said Boeh. "So it does matter to the average person who's in charge of the Fed, even in Minneapolis."
Boeh says Kocherlakota is a good choice. Louis Johnston, an economist at the College of St. Benedict and St. John's University, agrees. Johnston says he'll be eager to see which economic priorities Kocherlakota takes on.
He expects Kocherlakota's stances to be less inclined toward government intervention in the economy. But Johnston says, it's unclear how rigid Kocherlakota will be about some issues like monetary policy -- that is, the Fed's stance on interest rates.
"We really can't tell. I don't think there's any way from his published writings to know what his views on these subjects are," said Johnston. "That's something about this appointment that's very interesting. He's not someone who's been known as a public commentator on monetary policy in that fashion."
One thing is clear, Johnston says. Kocherlakota's climb from the University of Minnesota's economics department to the Minneapolis Fed marks what Johnston calls the "coming of age of Minnesota macroeconomics." It will tie the two institutions together even more closely than before.
- All Things Considered, 09/30/2009, 5:20 p.m.