The Bird fight – Yellen vs Summers

I have co-authored a paper on Yellen versus Summers with my Danske Bank colleagues Signe Roed-Frederiksen, Kristoffer Kjær Lomholt and Mikael Olai Milhøj. This is the abstract:

Fed chairman Ben Bernanke’s second four-year term expires on 31 January 2014 and his successor needs to be vetted by Congress before then. Although a dark horse cannot be ruled out, there are two clear candidates: Lawrence Summers and Janet Yellen. The debate of who is the most suited successor to Big Ben has been surprisingly little about the candidate’s economic views and the level of innuendo has been a US presidential campaign worthy. The US economy is on the path to recovery and it is now as important as ever how the new chairman plans to run future US monetary policy. This paper discusses the differences in economic policy of Yellen and Summers and in particular if it is fair to call Yellen the most dovish of the two.

Our conclusions are as follows. We believe that the characterisation by the media of Lawrence Summers as being more hawkish than Janet Yellen is too simplistic. In fact we argue that Summers and Yellen are equally dovish when economic conditions improve, since they both have a very strong aversion to unemployment relative to inflation. It is first when the US is hit by a negative demand shock while interest rates are at the zero lower bound that Summers is likely to be more hawkish than Yellen. This is due to Summers’s open scepticism towards alternative monetary stimulus instruments such as QE – a scepticism not shared by Yellen.

We point out the importance of a transparent Fed and we believe that Yellen would support this transparency. On the other hand, Summers’s flamboyant personality together with his comments that he will be a fire-fighting Fed chairman indicate that the Fed would become less transparent if he was to be chosen by Obama.

Read the rest of the paper here.

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1 Comment

  1. Yellen is so clearly the right choice. Reasonably nonpartisan, up to date on modern, expectations-focused macro, spent years building relationships with other central bankers and monetary thinkers rather than hobnobbing with greasy pole climbers. Seemingly a the ideal administrator who’d be picked in a high trust society. Obama is not interested in macroeconomics though. His goal is to support his upper caste friends and to dole out goodies to favored groups. I can imagine the markets will tank if Summers is announced, hopefully that will be enough to tie up confirmation. I’d also point out that the media haven’t brought up why Summers was fired from Harvard, this is the Obama effect. No other president would be able to pick Summers over a well-qualified female candidate.


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