I Cannot Find Jacopo **Jacobo** Timmermann on Gabriel Garcia Marquez on Fidel Castro...
Noted for Your Evening Procrastination for November 26, 2013

No, I Do Not Know What Is Going on at Minneapolis Fed Research...

I do think that the monoculture they had developed was unhealthy--it did leave them completely unable to even think about the world post-2007 at all.

You can put me down as suspecting that Mark Thoma is right, but I have no insight:

Stephen Williamson: Problems in the Great White North:

You think I'm going to discuss the mess the Mayor of Toronto [Rob Ford] is making in his city, and the embarrassment faced by those of us who have an attachment to the place? Actually, the problem I'm going to focus on is located in Minneapolis--otherwise known as Toronto On a Bad Day. The Minneapolis fracas has some parallels to the Toronto fracas.... Kocherlakota has declared war on his own research department, and seems intent on destroying the place.... If the greater good is supposed to be better policy, then it seems that many sharp macroeconomists beg to differ. So, what's to be done? Like the Mayor of Toronto, Narayana Kocherlakota seems locked in his own bubble. The Mayor of Toronto doesn't seem good for much of anything. He should do the world a favor, resign, and go live as far away from other human beings as possible. Narayana, though, is indeed good for something.... There are plenty of first rate academic research departments that would be happy to give him a good home. Central banking, however, is not his calling, and he should quit--and do everyone, including himself, a favor.

Mark Thoma: Minnesota Fed President and Research Department:

My theory about what is happening at Minnesota is that it is mostly about poor communication and insufficient leadership over a very strong-willed group. That led to frictions between Narayana Kocherlakota and the research department. These issues came before his ideological conversion, have nothing to do with saltwater-freshwater, or pronouncements on low interest rates and deflation.

Nick Rowe: On firing your advisers:

If you are in a position of power and responsibility you need advisers. The main job of your advisers is to stop you saying something stupid in public. You say it to your advisers first, in private. If it's stupid, your advisors should tell you it's stupid. That's their job.... You don't fire your advisers because they disagree with you; you fire your advisers because they didn't disagree with you when they should have disagreed with you. In August 2010, the President of the Minneapolis Fed said something stupid in public. In May 2013 he again said something stupid in public.... That's OK. Even very intelligent people sometimes say stupid things. But it's the job of their advisers to stop them saying stupid things in public. And in these two cases, any halfway competent macroeconomist could have advised him that he was about to say something stupid in public.... I think he fired his advisers because he realised they had failed to do their job.... In May 2013, he wrote: "I thank participants in a FRB-Minneapolis bag lunch for comments." Unless those comments included something similar to what I have said above, they were useless.

Miles Kimball and Noah Smith: The shakeup at the Minneapolis Fed is a battle for the soul of macroeconomics--again:

A personnel shakeup at the US Federal Reserve Bank of Minneapolis last week... may be a part of big changes... at the Fed, as well as a tectonic shift in the field of economics itself. Two of the Minneapolis Fed’s most eminent and long-serving economists, Patrick Kehoe and Ellen McGrattan, have been fired.... They believed that... recessions are not economic failures, but instead are inevitable, healthy outcomes of economies responding to the uneven pace of technological progress.... If the Fed prints money to try to stimulate demand, they say, it will only succeed in creating inflation.... The researchers at the University of Minnesota and the Minneapolis Fed have largely hung onto the belief that monetary policy can affect inflation, but can’t fight recessions.... In 2008, on the eve of the crisis, even as Saltwater economist Olivier Blanchard published a paper arguing that the two schools had essentially reached agreement, Kehoe published his own paper arguing vehemently that models with any Saltwater taint (in particular, the so-called “New Keynesian” models) were fundamentally flawed. A few months later, at the end of 2008, America tumbled into its biggest economic slump since the Great Depression, soon followed by much of the rest of the world. Freshwater macroeconomists were left scratching their heads. How could this calamity represent the efficient outcome of a well-functioning economy?...

Paul Krugman: Musings on Minnesota Macro:

Miles Kimball and Noah Smith have a long piece on the shakeup at the Minneapolis Fed, where a couple of prominent freshwater macro people have been fired. Kimball and Smith carefully tiptoe about exactly what happened, and so will I--I hear stuff, but it’s second- or third-order hearsay, and not reliable. What we can ask is what might have led Narayana Kocherlakota, the bank’s president, to conclude that he wasn’t getting value out of research economists with lots of publications in top journals. Kimball and Smith stress the broad failures of freshwater macro predictions.... Larry Summers mocked this stuff--probably this [Chari, Christiano, and Kehoe] paper, but maybe more generally--during his IMF remarks: "I always like to think of these crises as analogous to a power failure.... The network would collapse... output would of course drop very rapidly. There’d be a set of economists who’d sit around explaining that electricity was only four percent of the economy, and so if you lost eighty percent of electricity you couldn’t possibly have lost more than three percent of the economy, and there’d be people in Minnesota and Chicago and stuff who’d be writing that paper… but it would be stupid. It would be stupid.' Now, as I’ve tried to say on a number of occasions, mistakes happen. If you, as an economist, try to weigh in on events as they happen, you will get things wrong, and sometimes... in a big way. The crucial question is what you do next. Do you engage in self-analysis, trying to figure out what in your framework led you astray? Or do you double down on your preconceptions...? One thing is for sure: people who take the second route don’t add value to a policy-making institution.