Minneapolis Fed needs U’s collaboration

Cutting ties with University economists is a detriment to research and economic policy.

Until recently, the University of Minnesota’s Department of Economics had a long-standing relationship and research col­laboration with the Federal Reserve Bank of Min­neapolis.

Originally grown out of a Minneapolis Fed ad­viser position that former University economics professor John Kareken held in the 1970s, this partnership has borne several Nobel Prizes for some of the University’s top economics research­ers, producing research which has helped turn theory into economic policy at the Minneapolis Fed.

But current Minneapolis Fed President Nara­yana Kocherlakota — a former economics profes­sor at the University — has had a change of vision, resulting in monetary adviser and University pro­fessor Patrick Kehoe being let go and no contract extension for adjunct professor Ellen McGrattan.

The Wall Street Journal and Minnesota Pub­lic Radio have suggested these personnel shifts come with a more defined philosophical change. University economists have historically believed unemployment cannot be greatly altered by monetary policy, but it seems Kocherlakota has moved away from this view. A Nov. 26 Wall Street Journal article reported Kocherlakota “went from thinking the cause was largely structural (and thus could not be fixed with monetary policy) to thinking it was largely due to weak demand (which means it could be addressed through poli­cies aimed at boosting demand).”

Whatever the cause behind Kocherlakota’s personnel changes, decreased collaboration be­tween the University and the Minneapolis Fed isn’t good for either party. Philosophical debate is necessary for Nobel Prize-winning research and for the resilience of future economic policy. By cutting ties with University economists, Kocherla­kota jeopardizes the multifaceted nature and tra­dition of the Fed’s collaborative research with the University.