The chairman of the Federal Reserve Bank of Minneapolis voiced support for Narayana Kocherlakota, the bank’s president, after reports he ousted two economists.
The Fed district bank’s board “fully supports the vision of its president, Narayana Kocherlakota, for the bank’s research department,” Mary Brainerd, the board’s chairman, said today in an e-mailed statement. “Under his leadership, the bank has significantly expanded the size of its research department, adding diversity in skills and perspectives.”
Kocherlakota on Oct. 18 fired Patrick Kehoe from his post as a monetary adviser, Ellen McGrattan, a monetary adviser at the bank, said in an interview. Kehoe, who declined to comment, had held his position since 1997 and joined the Minneapolis Fed as a consultant in 1989.
McGrattan plans to take a leave from the bank next year to accept an offer to join the faculty at the University of Minnesota.
“If you have an outside offer, typically you would bring that to your supervisor and they would make a counter-offer or not,” McGrattan said, adding the district bank didn’t make such an offer. McGrattan joined the Minneapolis Fed in 1992 as an economist and has held her current post since 2003.
Kehoe and McGrattan have argued that monetary policy can do little to reduce unemployment, according to a report yesterday in the Star Tribune in Minneapolis. Kocherlakota has backed record easing and has called for even more accommodation from the Fed.
The policy-setting Federal Open Market Committee has committed to hold the main interest rate near zero as long as the jobless rate is above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent. Kocherlakota, an early advocate of tying policy to economic indicators, has called on the Fed to step up accommodation by reducing its unemployment threshold to 5.5 percent.
The Fed district bank’s research department is “in turmoil,” with “top researchers” being “explicitly and implicitly shown the door,” Stephen Williamson, a former Minneapolis Fed economist, said in a Nov. 18 blog post. He is now a professor at Washington University in St. Louis.
The Minneapolis Fed named a new research director and senior vice president, Sam Schulhofer-Wohl, on Oct. 23, replacing Kei-Mu Yi, who has stayed on with the title of special policy adviser to the president.
Kehoe’s dismissal may hinder efforts by the Minneapolis Fed to recruit top economists, Williamson said today in a phone interview. Several Nobel prize-winning economists have been affiliated with the Fed district bank, including Robert E. Lucas, a professor at the University of Chicago, and Thomas Sargent, a professor at New York University.
“It’s highly unusual” and “very puzzling” for a senior economist at a district bank to be fired, especially one who is as “high profile” as Kehoe, Williamson said. “It’d be too bad if this threw the whole place in a state of uncertainty.”