Plenty of media and blog coverage today of Ben Bernanke's appointment as the next Fed Chairman. My previous posts covered the initial blog commentary, but see also Tyler Cowen's piece on Bernanke's contributions as an economist, and William Polley and James Hamilton. Hamilton says Bernanke "absolutely has a first-rate mind, just as sharp as they come."
Nouriel Roubini says "this is a very good choice as he is someone very smart, ideologically pragmatic, with intellectual and academic rigor but also policy savvy and experienced." King at SCSU Scholars discusses Bernanke and inflation targeting. Even Larry Kudlow think's Bernanke is "a good choice", though Brad DeLong takes him to task for implying Bernanke is not a "demand-sider and a Phillips Curver" like Don Kohn.
Amongst the commentariat, John Berry writes that Ben Bernanke Has a Lot Going for Him to Make It:
...Bernanke has a lot going for him. He is among the most knowledgeable economists in the world about monetary policy theory. From his almost three years of service on the Fed Board from 2002 until this year when he became chairman of President George W. Bush's Council of Economic Advisers, he knows all the other Fed policy makers.
From that same service, he has first-hand knowledge of how Greenspan achieved a policy consensus among the 19 FOMC participants. Even with his reputation and the power of the chairmanship, Greenspan has always adopted a collegial manner, according to many of those who have served on the committee with him. Presumably Bernanke will do the same.
There are two other things the new chairman will have going for him. First, Bernanke and all the other policy makers are in full agreement that the Fed's primary goal is keep inflation under control, which in turn is the best way the Fed can fulfill its other legal mandate, maximizing sustainable employment.
Second, while there are some formidable long-term economic challenges facing the country -- particularly the huge current account and federal budget deficits -- the economy at the moment is reasonably well balanced with no sign of either excessive weakness or rapidly accelerating inflation. In other words, Bernanke probably will have much more time to find his feet as chairman than Greenspan did when he took over in the summer of 1987.
While agreeing that "there is something to be said for a rules-based policy as opposed to Greenspan's seat-of-the-pants approach", Caroline Baum is worried Bernanke may be too academic:
Bernanke spent most of his professional career in academia, which has its pros and cons. On the plus side, he's a respected scholar in the field of monetary policy (in nominating Bernanke, Bush at least was in the right ballpark), author of numerous articles and two textbooks.
On the negative side, he's more likely to be married to the model than Greenspan, the world's No. 1 data consumer. Bernanke was expecting core inflation to fall in 2004 based on something called the output gap model, which attempts to measure the excess slack in the economy. The difference between what the economy is producing (actual gross domestic product) and what it is capable of producing (potential GDP) if land, labor and capital are fully employed is supposed to be a guide to price pressures.
It sounds nice on paper; it works less well in practice. Core inflation, or inflation excluding food and energy, doubled from 1.1 percent at the end of 2003 to 2.2 in 2004.
Making a bad forecast doesn't disqualify someone from being Fed chairman. If it did, Greenspan would have hung up his cleats years ago. The danger is in relying on a model that may have outlived its usefulness.
For other commentary see the FT's Christopher Swann on how Maverick freethinker must adapt to life as new Fed chairman, Christopher Cooper at the WSJ Online, Daniel Gross at Slate on whether
Bernanke's tough enough on inflation?, White House Gamble Pays for a Princeton Professor (New York Times), Bruce Reed at MSN... or just go to News Google.
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