Category: forecasting

I have been blogging and tweeting a lot about diversity in economics, but I have not explained why I am so interested in this topic. And no, it’s not because I am woman in economics and feel shortchanged. I have a great job and two wonderful kids. Sure I’ve heard some crap along the way, but who hasn’t? What motivates me is a concern about the advice we give as economists and how that affects individuals and communities.

I arrived at the Board in the summer of 2007 and started forecasting in 2008. Can you imagine what my first year was like as I learned how to forecast consumer spending? I was barely keeping my head above water (and only with many colleagues helping me). I remember a night in January 2008 when I was preparing my first forecast meeting presentation … Miles Kimball had sent me an email about some hopelessly overdue research … and then a Board colleague stopped by to check on me. He reminded me that everyone wanted me to succeed. Our staff work is very much a team effort. Reassuring but I still felt like an imposter, a feeling that only got worse as the Great Recession took hold.

Fast forward three years to 2011. We had gotten past the financial crisis, coffee no longer ran out in our cafeteria before 9 am, and the stress of work was less acute. The recovery was moving along but not as expected. That was the hardest time at work for me. (Yes, I added a broken heart to this forecast-evolution chart.)

One thought nagged at me in 2011 … what if we are wrong? Maybe the economy doesn’t always recover? Maybe we aren’t doing enough? I was surrounded by smart, hard-working colleagues at the Fed and I was closely following the related academic research. But if we, economists collectively, are so smart how did we miss signs of the financial crisis? The no-doc loans, the house-prices-can’t-fall mentality, the subprime is “contained”, and on and one. If we couldn’t put the pieces together correctly then, what were we missing in the recovery?

Thinking I might find some lessons in the past, I spent some free time talking to folks, reading archives, etc. My reflections here are on the Fed, but I think these issues exist throughout the economics profession. Mine is not a systematic or an expert evaluation. (Feel free to stop reading and turn to this paper by former Fed Governor Tarullo.) Also I have been interested more in the why than the specifics of what we learned about financial markets or monetary policy tools.

So what does any of this have to do with diversity in economics? A lot, I think. The financial crisis, Great Recession, and recovery were times when the economics playbook was often incomplete or in some cases just plain wrong. A common retort is that some model from “way back when” foresaw the role of financial frictions, specifically, or the need for stimulus, generally. I don’t buy it. It’s how we use our knowledge … giving advice and making decisions in real time … not the sum total of everything ever written down that matters. If the same person who wrote the “financial accelerator model” could also utter the words subprime “seems likely to be contained” in 2007 then the economics profession was out of its league. I come back again and again to how hard it is for us to think beyond our economist assumptions.

Of course, there were economists who recognized imbalances in housing markets before the crisis. For one example, see remarks by Josh Gallin and Andreas Lehnert, staff economists, at the June 2005 FOMC meeting (pg 4-11). It’s much easier to find examples of the economic consensus shutting down or discounting such concerns. At that same meeting (pg 46), I was sad (but not surprised) to see Greenspan say “Shall we break for coffee?” right after Susan Bies delivered a summary of risks building in mortgage markets. 2005 was fairly late, maybe it would not have mattered then? However, as early 2000, before the big run up in mortgage debt, calls came for the Fed to do more on predatory lending. Some bits on this: from the Federal Trade Commission in September 2000, Board staff work (lawyers) on a regulatory proposal in late 2000, but no traction as seen in a speech by then-Fed Governor Ned Gramlich in 2001. And that was from an economist policy maker who was one of the most aware of the lending problems.

My point is not to argue that economists are always wrong or that our models are worthless. Quite the opposite. Quantifying issues, modeling historical statistical patterns, thinking hard (and dispassionately) about causal factors are a very important skills. Similarly, I was told that the Council of Economic Advisers’ key role is to shoot down bad ideas … a great story from Ken Arrow … and I saw it in my time there. Economists think differently than many others and that’s great until it’s not. Being good at counterfactual thinking, trade offs, comparative advantage, and other non-intuitive logic, as well as a love of numbers, are useful attributes of economists BUT only as part of a larger team. For example, we, economists, tend to have blind spots from our assumptions on efficiency, credibility, rationality, markets, etc., in a way that a non-economist would not.  And yet, economist are known for going it alone. Sigh.

Groupthink … the lack of meaningful diversity … in economics has real consequences for real people. We give advice to Congress on how to spend hundreds of billions of dollars in stimulus. We make decisions at the Fed on interest rates. And in many capacities, we have input on financial markets, regulation, and business practices. This adds up to profound effects on many, many lives. And yet, our closed-system culture puts great emphasis on top five publications (an internal status marker) and the credibility of our economic institutions (making sure economists remain key to policy). Hiring more women and minority economists alone is unlikely remedy our grouthink, but I think it would help. Clearly, diversity in ideas spring from many sources, but life experiences shaped by gender and race are some drivers. Above all, I hope that making diversity a priority in our own ranks will help us see the benefits of listening to others.

PS The title of my post is a bit of play on the title on the recent “Rethinking Macroeconomic Policy” conference.  It had an esteemed group of speakers, each of which has waaaay more perspective on economic policy than I do. I only had time to watch the opening remarks (busy new job for me), but I hope the topic of diversity in economics got some attention. Or maybe I will hear other views on why economists culturally got it so wrong and how we can improve?

PPS This post … as with all of my macromom posts … reflects my own personal views and should not be ascribed to anyone else in the Federal System or to my role as a staff economist there.

I was recently asked by someone who organizes a macro outlook conference for names of women and ‘non-white’ men who would be knowledgeable and good presenters. (I think the idea was to avoid a sea of panels with only white, male economists … not uncommon in macro.) The only hard part of his request was finding time to work on the list! Let me stress that I do not group economists in my mind by the color of their skin, gender orientation, or any other personal characteristics. I wrote up a list of suggestions as in groups requested, but their fields of expertise and the examples of their work that I included is more how I think of my economist colleagues. This is not an exhaustive list, I was trying to span the set of topics that might come up at a macro outlook conference. There are nearly 400 PhD economists on staff at the Board, and, of course, plenty of the white men at the Board would also be excellent additions to any macro outlook conference. And while I am proud of improvements in diversity over time at the Board, we also have a ways to go.

I did not intend to make a list solely of economists at the Federal Reserve Board in DC. We do have a mix of policy and research responsibilities that makes us focused on real-world issues. See Beverly Hirtle’s answer on how Fed economists differ from those in academia. We also get a lot of practice on writing and speaking. Even so, diversity takes many forms and you do not want a program full of Fed types. In fact, I went to an awesome conference this week on labor market disparities and it’s awesomeness stemmed from the wide-ranging participation (especially the audience).

Does diversity matter for the economics? Clearly we all want the sharpest, most dedicated economists on the task. But don’t you worry about our pipelines when we start to look or alike or come from the similar backgrounds? I do. A critical mass not a strict equality is often all we need to make the profession welcoming to a would-be sharp economist. Not once have I walked in a forecast meeting at the Board and felt that I stick out as a woman. But that’s not true everywhere I go. Even a few years ago at the NBER Summer Institute, I walked into a room and was one of few women sitting at the table as a presenter. I noticed. When I was at CEA, I got to present the US forecast at the OECD. When I looked around a HUGE table, I was the only woman presenting a country forecast and few were even in the room. By that point, I had done tons of macro forecasting and I knew that I had something to contribute. Who, we as economists choose to represent us and to tell us about the economy, does send a message. Choose your panels and speakers wisely. I want to make sure we are sending a message that supports diversity and makes our economics stronger.

Update: I knew in writing this that I did not know as well how to even set up the race/ethnicity grouping. (Note, gender is not simple either.) I went with the idea of non-white but I would encourage you to visit the Committee on the Status of Minority Groups in the Economics Profession for a more systematic approach. More broadly, I struggle to explain why diversity matters and yes, it should take many many forms but I don’t think it’s a stretch for us to be very concerned about groupthink in economics.

Update 2: The list below is not comprehensive … but maybe some are interested in the overall stats. By my calculations from the webpage, there are 394 economists on the Board staff, of which ~107 are women = ~27%. In macro specialty the split is ~55 women / 218 total = ~25%. Note the “~” takes into account that I don’t know the gender identification. See the Committee on the Status of Women in the Economics Profession’s annual report for some comparisons in the economics profession.

Some Women Economists at the Board:

Stephanie Aaronson, Assistant Director – labor markets, general macro “Labor Force Participation: Recent Developments and Future Prospects”

Kimberly Bayard, Group Manager – IO, measurement, industrial production “Industrial Production and Capacity Utilization: Recent Bulletin Articles and Other References”

Devin Bunten, Economist – urban economics, housing  “A Sense of Where You Are: A History of Housing, Planning, and Discrimination in America”

Stephanie Curcuru, Assistant Director – international capital flows, market risk measures: “The Return on U.S. Direct Investment at Home and Abroad”

Deepa Datta, Principal Economist– oil markets, international finance “Oil, equities, and the zero lower bound”

Wendy Dunn, Principal Economist – general macro, measurement “The Effect of Sales-Tax Holidays on Consumer Spending”

Burcu Dyygan-Bump, Assistant Director – monetary policy “The Demand for Short-Term, Safe Assets and Financial Stability: Some Evidence and Implications for Central Bank Policies”

Rochelle Edge, Associate Director – Financial stability, DSGE Who is in charge of financial stability, why, and what they can do and “How Useful Are Estimated DSGE Model Forecasts for Central Bankers?”

Laura Feiveson, Senior Economist – consumption, state and local government finance “Does State Fiscal Relief during Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act”

Sarena Goodman, Senior Economist – student loans, college access, Survey of Consumer Finances “Where Credit is Due: The Relationship between Family Background and Credit Health”

Joanne Hsu, Senior Economist – financial literacy, consumer credit, Survey of Consumer Finances “Minimum Wages and Consumer Credit: Impacts on Access to Credit and Traditional and High-Cost Borrowing”

Jane Ihrig, Associate Director – monetary policy, asset pricing  “Rewriting Monetary Policy 101: What’s the Fed’s Preferred Post-Crisis Approach to Raising Interest Rates?”

Felicia Ionescu, Principal Economist – student loans, human capital “College or the Stock Market, or College and the Stock Market?”

Kathleen Johnson, Assistant Director – household credit markets, measurement “Auto Sales and Credit Supply”

Elizabeth Klee, Assistant Director – monetary policy implementation “Take it to the Limit: The Debt Ceiling and Treasury Yields”

Raven Molloy, Chief – housing markets, urban “Understanding declining fluidity in the U.S. labor market”

Karen Pence, Assistant Director – consumer finance, real estate “How Much Are Car Purchases Driven by Home Equity Withdrawal? Evidence from Household Surveys”

Ekaterina Peneva, Principal Economist – inflation “Inflation Perceptions and Inflation Expectations”

Brigitte Roth Tran, Economist – weather effects “Blame it on the Rain Weather Shocks and Retail Sales”

Claudia Sahm, Chief – consumer spending, general macro “Another Look at Residual Seasonality in GDP”

Kamila Sommer, Senior Economist – housing markets “Implications of U.S. Tax Policy for House Prices, Rents, and Homeownership”

Stacey Tevlin, Associate Director – business investment, general macro “Perspectives on the Recent Weakness in Investment”

Maria Tito, Economist – IO, international trade “Unraveling the Oil Conundrum: Productivity Improvements and Cost Declines in the U.S. Shale Oil Industry” and “Import Penetration and Domestic Innovation: A View into Dynamic Gains from Trade”

Alison Weingarden, Economist – Labor markets, layoffs, regional disparities “Labor Market Outcomes in Metropolitan and Non-Metropolitan Areas: Signs of Growing Disparities” and “The Timing of Mass Layoff Episodes: Evidence from U.S. Microdata”

Min Wei, Deputy Associate Director – Treasury markets, risk premium “Macroeconomic Sources of Recent Interest Rate Fluctuations”

Gretchen Weinbach, Senior Associate Director – monetary policy, banking and monetary transmission “How Have the Fed’s Three Rate Hikes Passed Through to Selected Short-term Interest Rates?”

Rebecca Zarutskie, Chief – bank regulation, lending “Firm Leverage, Labor Market Size, and Employee Pay”

Some ‘Non-White’ Men Economists at the Board:

Aditya Aladangady, Senior Economist – consumer spending, houshold balance sheets “Housing Wealth and Consumption: Evidence from Geographically-linked Microdata”

Jose Berrospide, Chief – financial stability, bank capital The Real Effects of Credit Line Drawdowns

Neil Bhutta, Principal Economist – mortgage lending, consumer finance “The Effect of Interest Rates on Home Buying: Evidence from a Discontinuity in Mortgage Insurance Premiums”

Andrew Chang, Senior Economist – investment “Is Economics Research Replicable? Sixty Published Papers from Thirteen Journals Say “Often Not”

Andrew Chen, Economist – asset pricing “Has the inflation risk premium fallen? Is it now negative?”

Brahima Coulibaly, Chief – monetary and exchange rate policies, global capital flows ” Emerging Market Capital Flows and U.S. Monetary Policy”

Illenin Kondo, Senior Economist – international trade, financial crisis in open economies “Foreign Competition and Domestic Jobs: Evidence from the U.S. Trade Adjustment Assistance”

Alvaro Mezza, Senior Economist – student loans, consumer finance “Student Loans and Homeownership”

Marius Rodriguez, Principal Economist – financial derivatives, CMBS pricing “Drivers of Inflation Compensation: Evidence from Inflation Swaps in Advanced Economies”

Gustavo Suarez, Chief – short-term credit markets, financial crises “Why isn’t Investment More Sensitive to Interest Rates: Evidence from Surveys”

Ivan Vidangos, Principal Economist – labor markets, public finance “Racial Gaps in Labor Market Outcomes in the Last Four Decades and over the Business Cycle”

Missaka Warusawitharana, Group Manager – corporate finance, asset pricing “Mapping Heat in the U.S. Financial System”