The Federal Reserve Bank of Minneapolis’ choice to sever ties with two University of Minnesota economists has stirred controversy, but some in the University’s Department of Economics say it won’t adversely affect the department’s long-standing relationship with the Minneapolis Fed.
Economics professor Patrick Kehoe and adjunct associate professor Ellen McGrattan were both monetary advisers for the Minneapolis Fed, but they were let go last month. Kehoe was removed immediately, and McGrattan will finish out her contract, which lasts until January.
The Minneapolis Fed has shared research economists and graduate assistants with the University for decades, said Christopher Phelan, chair of the University’s economics department. He said he expects no hiccups in the University’s relationship with the bank.
Fabrizio Perri, another monetary adviser at the Minneapolis Fed, is currently on leave from his job as a University economics professor.
“Although many of us are bothered by these recent events, economic research is alive and well here in Minnesota,” he said in an email.
Most staff members in the Minneapolis Fed’s research department and the University’s economics department are working to move forward, he said.
Edward Prescott, a Nobel Prize-winning economist at Arizona State University and senior monetary adviser at the Minneapolis Fed, said he’s not sure why Minneapolis Fed President Narayana Kocherlakota chose to sever the bank’s ties with Kehoe and McGrattan.
Kocherlokota took his post in 2009. Since becoming president, Kocherlakota hasn’t often been open with the Minneapolis Fed staff, Prescott said.
“He doesn’t talk to anybody — not the people he’s hired,” Prescott said.
Prescott said he thinks the staffing changes had more to do with differences in personality than differences in economic policy.
Because staffing changes like this are rare, Prescott said, some Federal Reserve Bank presidents he has spoken with were “shocked” by the changes in Minneapolis.
“I don’t think [Kocherlakota is] playing optimally from his own perspective,” Prescott said.
Kocherlakota has yet to comment publicly on the matter. But Mary Brainerd, chair of the Minneapolis Fed Board of Directors, released a statement supporting the president’s vision.
She said in the statement that Kocherlakota has expanded the Minneapolis Fed’s research department.
“The bank has an exceptional history of contributions in economic research and a valued relationship with the University of Minnesota,” she said, “and we are confident that President Kocherlakota’s strategy will build on that tradition.”