Kocherlakota to the Fed
1. Bob Lucas told the Wall Street Journal, "He's probably the most abstract thinker ever to head a Federal Reserve bank." That is true and, indeed, an understatement. It is almost like Albert Einstein was hired to be CEO of General Electric.
2. Narayana has done some very interesting research. My favorite is his work on dynamic optimal taxation. But very little of his work is relevant to the day-to-day concerns of central bankers. If Fed watchers want to figure out his views about monetary policy, they will have a hard time finding much in his written work.
3. Why did he want this job? Unlike Ben Bernanke, who had written extensively in applied macroeconomics, Narayana is not pursuing a path that seems natural in light of his past work. I suspect his interest in the job was in part based on a desire for a major change in career path, such as when Michael Spence or Hugo Sonnenschein made the shift from economic theory into university administration. I wonder how much Narayana will enjoy the typical responsibilities of a Federal Reserve Bank President, such as talking about the latest data on local economic conditions with the Minnetonka Chamber of Commerce.
4. Given his unusual background (unusual, that is, for a Bank President), I look forward to hearing Narayana in a few years, after he has had a chance to reflect on the interaction between macroeconomic theory of the sort practiced at the University of Minnesota and the conduct of macroeconomic policy. Is Minnesota-style theory more useful for policymaking than it is usually given credit for in policy circles? If so, how? If not, should it move in new direction? Narayana is now in a position to be a credible messenger between two distant islands within the economics profession. It will be noteworthy to see what messages he chooses to convey.
5. Narayana is very smart and, by all reports, a very nice guy. I wish him luck in his new job.