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Janet Yellen and central banking: The Harvard connection

I applaud President Obama’s decision to nominate Janet Yellen to be the next Fed chairwoman — indeed, the first chairwoman in the Fed’s history. This is very much a victory of the public: the White House clearly favored the other top candidate Lawrence Summers, and if it weren’t the strong opposition by the general public (and many bloggers), Democratic Senators may not have supported Yellen and “vetoed” Summers. The White House would now need to stand firmly behind Yellen to repair some of the collateral damage that they have done to her creditability by letting the Yellen-Summers race to linger on. I believe a swift confirmation by the Senate would be helpful, and it would likely be the case (remember how Nobel laureate Peter Diamond withdrew his nomination to the Fed after Senate Republicans suggested that he was unqualified?)

Yellen has all the credential to excel at that role: she has been a professor in economics at Harvard, LSE, and Berkeley, and has extensive policy background by serving as Chair of Council of Economic Advisers, President of San Francisco Fed, and currently the Vice-chair of the Fed. She wants tighter financial regulation (is it why the financial industry prefers Summers?), and has been instrumental in implementing the “forward guidance” policy to build unemployment down.

Talking about Yellen’s background at Harvard, I cannot stop myself thinking about how interconnected Harvard is to the central banking world. Yellen was indeed Summer’s professor when he did his PhD at Harvard, and Summers went on to become one of the youngest tenured professor in Harvard’s history, Harvard’s president, and currently a professor at the Harvard Kennedy School (HKS). The HKS Mossavar-Rahmani Center for Business & Government that he now directs has many former central bankers on board, including the outgoing Bank of England deputy governor Paul Tucker. The former Greek prime minster George Papandreou — who “started” the European debt crisis by revealing the government deficit is 12.7% rather than 6.7% (which is far higher than the European 3% limit anyway) — has been a fellow at the HKS last year, and his successor Lucas Papademos taught a class on central banking here. Robert Zoellick, the former World Bank president and the newly-appointed chairman of Goldman Sachs’ “board of international advisers”, is a fellow at the HKS. The school is also frequently visited by many central bank governors: for example, Prasarn Trairatvorakul, Governor of the Bank of Thailand, came yesterday; Mario Draghi, President of European Central Bank and a former fellow of HKS, will speak tomorrow; Raghuram Rajan, the new-appointed Governor of Reserve Bank of India, and Ignazio Visco, Governor of Bank of Italy, will come next week. And of course, there are many former senior IMF officials around too, including my advisor Carmen Reinhart, and her long-time co-author, former IMF chief economist Kenneth Rogoff.

But despite all these amazing resources we have, it is indeed puzzling that discussion on macroeconomic issues among the HKS student body is rather meager. There is no student organization that focuses on macro and finance to begin with. Students appear to be more interested in other part of public policy: international development, security issues, electoral politics, social policies, etc. There is certainly a missing gap that needed to be filled.

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