Q&A: Central banking in the 2020s and beyond

Q&A: Central banking in the
2020s and beyond

May 12, 2021 | By Dean Sevin Yeltekin

Twice a year, the Simon Business School, together with the economics department at University of Rochester, participates in a joint public policy conference alongside the NYU Stern School of Business and Carnegie Mellon University’s Tepper School of Business.

After a year-long delay caused by Covid-19, we hosted a virtual conference on the topic of central banking for a new decade. Following the April 16-17, 2021, event, I sat down with my colleague and conference co-organizer, Narayana Kocherlakota*, to reflect on how it went. 

*Professor Kocherlakota is the Lionel W. McKenzie Professor of Economics who co-organized the conference along with Mark Bils, the Hazel Fyfe Professor of Economics, with strong support from long-time Simon staff member Susan North.

What is the value of this bi-annual conference?  

Sevin Yeltekin (SY): As a school of business, we must be well-versed in policy, because policy defines the environment that business needs to operate. Conferences like these help us forecast and understand the wider impact of complex policy decisions. Our collaboration with NYU and Carnegie Mellon provides a unique forum for scholars, researchers, and practitioners to come together to discuss the most pressing policy issues of our time and shed some light on the way forward. And it is a great example of how our collaboration with the economics department enhances the reputation of the University as a whole. 

Narayana Kocherlakota (NK): This conference has tremendous value in several areas. First, it highlights the important contributions that academics make on questions of economic policy. Over the last 40 years, the conference has shone a spotlight on some of the most influential papers in our field. You can look back to Robert Lucas, who presented an article on the econometrics of policy in 1976 that went on to win a Nobel Prize, or a 1993 paper by John Taylor that proposed a policy rule that would allow central banks to systematically manipulate short-term interest rates to control inflation. The conference also highlights the strength of cooperation across our similar but disparate institutions, as well as the decades-long partnership between Simon and the Department of Economics at the University of Rochester.  

Which papers were presented at this year’s conference, and how did you select the topics?

NK: The last ten to fifteen years have been an enormous time of change for central banks, and the next decade doesn’t look like it will be any different on that front. Through the papers we selected, we tried to convey that central banking is an incredibly broad area that encompasses a range of topics. It’s not just about the Federal Reserve meeting eight times a year to set interest rates.  

SY: The conference board really worked hard to run the gamut on topics related to central banking. This conference featured eight papers in total:  

Central Banking Challenges Posted by Uncertain Climate Change and Natural Disasters
Author: Lars Hansen (The University of Chicago) 
Discussant: Tony Smith (Yale University)

Fiscal and Monetary Stabilization Policy at the Zero Lower Bound: Consequences of the Zero Lower Bound
Authors: Michael Woodford (Columbia University) and Yinxi Xie (Bank of Canada) 
Discussant: Chen Lian (UC-Berkeley)

No Firm is an Island: How Industry Expectations Shape Firms’ Aggregate Expectations
Authors: Philippe Andrade (FRB-Boston), Olivier Coibion (University of Texas), Erwan Gautier (Banque de France), and Yuriy Gorodnichenko (UC-Berkeley) 
Discussant: Isabelle Salle (Bank of Canada)

Designing Central Bank Digital Currencies
Authors: Itai Agur (IMF), Anil Ari (IMF), and Giovanni Dell’Ariccia (IMF)
Discussant: Carolyn Wilkins (former Senior Deputy Governor, Bank of Canada)

Cash-Management in Times of COVID-19
Authors: Fernando Alvarez (The University of Chicago), David Argente (Penn State University), and Francesco Lippi (EIEF) 
Discussant: Gabriel Chodorow-Reich (Harvard University)

The Supply and Demand for Safe Assets
Authors: Gary Gorton (Yale University) and Guillermo Ordonez (University of Pennsylvania) 
Discussant: Moritz Lenel (Princeton University)

SY: Our program included an extraordinary group of both academics and policymakers. We were especially excited to have Lars Hansen, a 2013 Nobel Laureate in Economics, open the conference. 

When you think back over the presentations, what are some of the findings you found most interesting or impactful? 

SY: There were interesting results presented in every paper, but I can highlight just a few. First of all, the topics of surveys came up in several presentations. Essentially, the question was whether we should survey people to hear their expectations on economic markers like inflation or rely instead on market-based data. One discussant brought up the possibility of using experiments to bridge the gap between the two, which was insightful. I was also particularly interested in the discussion of digital versus physical currency. One presentation gave historical overview of different non-cash currencies used throughout history. This context illustrated that there is a real spectrum between standardized currency and private currencies, and we have to be careful not to swing the pendulum too far in either direction. In a similar vein, it was striking to see data on how much people value the use of physical currency. It certainly gives you pause when considering the transition to entirely digital currency.

NK: In the climate change session, I was struck by a discussion about deciding between acting now, when there is limited information, versus deferring action until there is consolidated, solid theory. That’s a fundamental tension between academics and policymakers. Another key takeaway from that session is that there is a raging debate about the proper role of central banks in navigating the risks of climate change. Some of the participants raised the possibility of a central bank tilting toward green bonds when buying assets, while others thought that sort of tilting was a poor substitute for fiscal policies like taxing carbon emissions. There’s no avoiding this discussion, because as a central bank, you’re taking a position if you’re investing in green bonds, and you’re taking a position if you’re not. There was a general consensus, though, that central banks have a responsibility to provide transparent information and listen to the research coming from the academic sphere. 

Can you give us a preview of the conference scheduled for this fall? 

SY: We’ve decided to focus on economic mobility and opportunity for the next one, which will take place in November 2021 at Carnegie Mellon. Our presenters will spotlight research that analyzes the causes, consequences, and policy implications of barriers to economic opportunity and mobility across income and wealth distribution. The hardest part of planning these conferences is never coming up with questions—it’s choosing which ones to answer first!

To submit a paper for the coming conference, click here. 

Sevin Yeltekin, Dean 
May 12, 2021

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