Tuesday, September 10, 2013

On the Yellen Bandwagon

The quasi-campaign for the next Federal Reserve chair continues... Heidi Hartmann and Joyce Jacobsen (my office neighbor) have organized an open letter from economists in support of Janet Yellen, which concludes:
[W]e believe that Janet Yellen is an extremely effective leader who has demonstrated her capacity to work with the other FRB governors and to bring important perspectives of the American people to her leadership and decisions.  In our opinion, she is the best possible leader for the Federal Reserve Board at this critical time in our nation’s history.
The whole thing can be read here, and there is a link for economists who wish to add their names.

The letter has already been successful in attracting quite a few signatories, including some big names, like Michael Woodford (who Richard Clarida called "the leading monetary theorist on the planet right now" in this Bloomberg profile), Alan Blinder, Christina Romer, David Romer, Robert Shiller, Maurice Obstfeld, James Hamilton (who endorsed Yellen at Econbrowser), Mark Gertler, Menzie Chinn and Charles Engel.

In addition to having the support of economists, Yellen has also been endorsed by The Economist.

There has been quite an outpouring of commentary on this, though I don't think any of it has fundamentally changed the preference for Yellen over Summers I expressed in July after Ezra Klein's initial report that Summers was the front-runner (was that the worst trial balloon ever?).  However, Jared Bernstein, who worked with him in the White House, did argue persuasively that some of the vilification of Summers as a Wall Street stooge is off-base.  This story by Zachary Goldfarb details how and why President Obama became so enamored of Summers.  But as Steven Pearlstein argued (and so did Felix Salmon) that very closeness to the President is problematic from the standpoint of central bank independence.

One of the things I like about Yellen is that she appears to represent stylistic continuity with Bernanke, who has tried to de-personalize the making of monetary policy.  However, I think an argument could be made for a regime change in substance - a shift to a new monetary rule, like nominal GDP targeting as Christina Romer called for (and Scott Sumner persistently evangelizes for), or Laurence Ball's suggestion of a higher inflation target (which I also raised back in 2008), or Ken Rogoff's "sustained burst of moderate inflation."  A Fed chair openly advocating such a fundamental policy shift does not appear to be in the cards - certainly it would be problematic in the confirmation process, and there is no guarantee that the FOMC could be brought along anyway.  Of the options that are on the table now, Janet Yellen clearly seems the best to me.

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