NBER : Research Associate

The future of the zero lower bound problem

Practical Policy Evaluation

The Decentralized Central Bank: A Review Essay on The Power and Independence of the Federal Reserve by Peter Conti-Brown

The L-Shaped Phillips Curve: Theoretical Justification and Empirical Implications

Rules versus Discretion: A Reconsideration

Optimal tax design attempts to resolve a well-known trade-off: namely, that high taxes are bad insofar as they discourage people from working, but good to the degree that, by redistributing wealth, they help insure people against productivity shocks. Until recently, however, economic research on this question either ignored people's uncertainty about their future productivities or imposed strong and unrealistic functional form restrictions on taxes. In response to these problems, the new dynamic public finance was developed to study the design of optimal taxes given only minimal restrictions on the set of possible tax instruments, and on the nature of shocks affecting people in the economy. In this book, Narayana Kocherlakota surveys and discusses this exciting new approach to public finance. An important book for advanced PhD courses in public finance and macroeconomics, The New Dynamic Public Finance provides a formal connection between the problem of dynamic optimal taxation and dynamic principal-agent contracting theory. This connection means that the properties of solutions to principal-agent problems can be used to determine the properties of optimal tax systems. The book shows that such optimal tax systems necessarily involve asset income taxes, which may depend in sophisticated ways on current and past labor incomes. It also addresses the implications of this new approach for qualitative properties of optimal monetary policy, optimal government debt policy, and optimal bequest taxes. In addition, the book describes computational methods for approximate calculation of optimal taxes, and discusses possible paths for future research.

The New Dynamic Public Finance (The Toulouse Lectures in Economics)

The University of Rochester is one of the country's top-tier research universities. Our campuses are home to 200 academic majors, more than 2,000 faculty and instructional staff, and some 10,000 students.The University gives students exceptional opportunities for interdisciplinary study and close collaboration with faculty through its unique cluster-based curriculum. Its College, School of Arts and Sciences, and Hajim School of Engineering and Applied Sciences are complemented by its Eastman School of Music, Simon School of Business, Warner School of Education, Laboratory for Laser Energetics, School of Medicine and Dentistry, School of Nursing, Eastman Institute for Oral Health, and the Memorial Art Gallery. 





University of Rochester

Narayana Kocherlakota was the President and CEO of the Federal Reserve Bank of Minneapolis from 2009-2015. As part of his responsibilities in that position, he served on the Federal Open Market Committee (FOMC), the monetary policymaking arm of the Federal Reserve System.

His past research includes theoretical and empirical contributions to many fields in economics, including the economics of money and payments, business cycles, financial economics, public finance, and dynamic games/contracts. His current research is on monetary policy.

As a member of the FOMC, he spoke and wrote about a number of aspects of economic policy. As a professor, he intends to continue to write about economic policy.

Narayana Kocherlakota received a PhD in economics from The University of Chicago in 1987, under the guidance of Lars Peter Hansen and Jose Scheinkman (Rochester PhD and Lionel McKenzie student). Since that time, he has held academic appointments at a number of institutions, including Stanford University, Northwestern University, The University of Iowa, and the University of Minnesota.

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•	Why former Minneapolis Fed President Narayana Kocherlakota expects no rate cuts this year

What does the Fed mean when it says it’s looking for ‘good data’?

Fed Holds the Line on Interest Rates, Sees a Stronger Economy But Still Three Rate Cuts Coming in 2024

Biden's Economy Is Really Great—Except One Key Area

Fed-Rate Projections Could Rise to Underscore Inflation Anxieties

Stagflation Is Just What the Economy Needs

Op-ed: Markets Didn’t Oust Truss. The Bank of England Did.

A Fed President Spoke at an Invite-Only, Off-the-Record Bank Client Event. James Bullard, who leads the Federal Reserve Bank of St. Louis, appeared at a Citigroup forum last week in Washington.

Fed likely will keep raising rates for some time

Here's the single phrase to watch for from the Fed this week

The Senate Needs to Shore Up the Federal Reserve

Worried About Inflation? Here’s What That May Reveal About You.

Financial panic Inflation isn’t a real danger. But its prophets may hold the economy back

[OP-ED] Trump’s Fed Nominees Will Mean Easier Money

Derby’s Take: Fed Nominee Judy Shelton’s Views Appear to Shift

Negative Rates: Economists Explain What Happens If The Fed Gives Trump What He Wants

[OP-ED] The Federal Debt Is Nothing to Lose Sleep Over

2014 Fed conundrum: How to alert markets rates were going up

Fed's 2014 'normalization' debate sowed seeds for today's hot labor market

Powell Was Early Spotting Labor-Market Slack, Transcript Shows

5 major themes from this year's largest gathering of economists

[OP-ED] Five Big Macroeconomic Questions for 2020 and Beyond

The Fed Has Been ‘Highly Ineffective’ At Steering Economy, Former Top Official Says

Newsletter: Get Ready for the Fed, GDP and Jobs

Kocherlakota: Wealth taxes pose a risk to economic growth

Powell Could Still Get a Rate Cut If He Wanted It — No Matter What the Dot Plot Says

Repo Meltdown Shows Budget Deficit Has Limits

[OP-ED] Why I'm Worried About the Repo Market

Trump's attacks on the Fed are moving markets, study shows

'Bloomberg Markets: The Close' Full Show (9/18/2019)

Fmr. Fed president Kocherlakota: Dudley’s ‘dial back’ in op-ed didn’t dial back enough

[OP-ED] How Presidents Should Talk About the Fed

U.S. economy is ‘relatively strong’ and doesn’t need lower interest rates, key Fed leader says

[Op-Ed] What the Fed Could Learn From Canada

Economics professor: There's an argument for more easing

Dow drops for the first time in 4 days—here’s what experts see ahead for markets

Former Fed official Kocherlakota agrees with Trump that rates are too high

Widely Anticipated Fed Rate Cut May Backfire For Stock Market Bulls

Possible dissent hangs over Fed's first rate cut in a decade

The U.K. Is Split, Barnard Says

The Fed Has Reached a Turning Point

Why the Fed Shouldn't Cut Interest Rates Now

Why Stephen Moore Isn't Fit for the Fed

Modern Monetary Theory Finds an Embrace in an Unexpected Place: Wall Street

Feds Should Cut Interest Rate

The Fed Should Consider Lowering Rates

The Fed Should Prepare For The Unexpected

Fed's Path Should Be Lower, Slower on Yield Curve, Kocherlakota Says

Fed More Likely to Hike to Prove Independence, Says Kocherlakota

Barriers to entry

President Trump Says Jerome Powell Is His Choice to Lead Federal Reserve

Kocherlakota says Fed shouldn’t hike rates in June — and it should grow, not cut, the balance sheet

Negative Interest Rates Are Nothing to Fear

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Narayana Kocherlakota

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Lionel W. McKenzie Professor of Economics

Professor of Economics

Economic Downturns

Contract Theory

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Ani and Mark Gabrellian Professor, Professor of Political Science and Business Administration

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The Great Recession ended 10 years ago, but University of Rochester economist Narayana Kocherlakota says it is still very much with us.  David Primo, associate professor of political science and business administration, agrees that the country continues to feel the effects of the recession, though his take differs from Kocherlakota’s.  And Lisa Kahn, a professor of economics at the University of Rochester, sees another lasting effect from the Great Recession. “Unemployment is very low right now, leading people to think that we’ve recovered,” says Kocherlakota. “Income levels, however, are now as much as 15 percent below where they might have been, if not for the recession.” 

Many economists blame the income slowdown on a natural decrease in the rate at which new ideas are discovered. But Kocherlakota, former president of the Federal Reserve Bank of Minneapolis, attributes it to something else. “Businesses don’t want to lock up money in physical investments because they’re nervous about another Great Recession,” he says. “That’s why there’s less innovation, and that’s why we have an income slowdown.”

The Great Recession began in December 2007 after the bottom fell out of the US housing market. That was followed by a shortage of assets in the financial markets and the collapse of the financial sector, including banks, credit card companies, and insurance companies. The recession, the worst in the US since the Great Depression of the 1930s, officially lasted through June 2009, though unemployment levels didn’t peak until October of that year.

According to Primo, the losers were homeowners, among others. The banks, which many observers say bear some responsibility for the recession, were bailed out by the government, while homeowners were not. That perceived double standard has led to the Occupy Movement, support for Democratic presidential candidate Bernie Sanders, and the election of Donald Trump, according to Primo. 

“Economists may be 100 percent correct in saying it was necessary to bail out the banks,” says Primo. “But that’s a difficult political argument to hear if you lost your house, while banks were bailed out.”

 Says Kahn: “Many firms take the opportunity provided by a recession to introduce technologies that reduce their reliance on workers. In the old days, we had bank tellers giving out money; now machines can do that,” she says. “In manufacturing, we’re shifting more and more to machines instead of workers. And a lot of that shift takes place during recessions.” 

Kahn points out that wages and employment have been falling for the last 30 years in exactly the types of jobs that are increasingly performed by machines.

 
Kahn identifies an additional recession-related phenomenon, one that specifically targets college graduates. “It has always been bad to graduate during a recession,” says Kahn. “But the lost earnings from the Great Recession are much larger than they were in previous downturns, and it’s something that will stay with them long term.” 

Not only are fewer jobs available, the graduates find themselves competing against experienced workers who had recently been laid off. The net result is persistently lower wages.


The Great Recession: The downturn that wouldn’t end

not-this-time-but-expect-interest-rates-to-get-cut-soon-our-expert-can-explain-why

  It was all eyes on the Fed this week, but when it came to decide, Federal Reserve Chairman Jerome Powell held U.S. Interest rates steady and unchanged. The pressure was on to lower the rates amid serious concerns that the current trade wars and tariff action could start impacting America’s economy and slow it down. Narayana Kocherlakota, the Lionel W. McKenzie Professor of Economics at the University of Rochester wasn’t surprised by the June decision to remain steady. And with serving six years as president of the Federal Reserve Bank of Minneapolis, his expertise and perspective indicates lower rates will come at the next meeting. “I am not expecting a change in policy, which means the interest rates should remain the same. What I am expecting is a lot of discussion, which takes place in secret, about cutting interest rates by a quarter percentage point at their next meeting in July. Why would they do that? The Federal Reserve is tasked with trying to keep inflation at 2 percent and keep unemployment low. Right now unemployment is about as low as it’s been in the past half-century, which is very good. Inflation remains lower than the Federal Reserve would like—it’s been below 2 percent for most of the last seven years. I think they’re mainly worried about risks. There are signs of risk around the world partly due to big variations in trade policy emerging from the White House. So, the Fed is thinking about cutting rates now in order to keep the economy as healthy as possible, if there’s any danger of a recession.” University of Rochester Newscenter.  Will lower rates really keep America’s economy humming? Won’t lower rates impact the strong US dollar? And if we are headed toward recession, what else can de done to turn the economy around?  There are a lot of questions – and that’s where our experts can help. Dr. Narayana Kocherlakota was the President and CEO of the Federal Reserve Bank of Minneapolis from 2009-2015. As part of his responsibilities in that position, he served on the Federal Open Market Committee (FOMC), the monetary policymaking arm of the Federal Reserve System. He is currently a Lionel W. McKenzie Professor of Economics and is an expert in financial economics, interest rates and monetary policy. Narayana is available to speak with media regarding the economic effects of the shutdown – simply click on his icon to arrange an interview.  

Not this time, but expect interest rates to get cut soon – our expert can explain why

the-fed-should-consider-lowering-rates-say-the-experts-from-university-of-rochester

  On Wednesday, the Chairman of the Federal Reserve will be delivering another interest rate decision that could direct or at least prompt a punch to the arm the country’s economy. In fact, according to Narayana Kocherlakota who is currently a Professor of Economics at the University of Rochester, and who also served as the President and CEO of the Federal Reserve Bank of Minneapolis from 2009-2015 – the Fed should be dropping rates to increase stimulus t an economy in very much in need of help. In a column (see attached) published this week in Bloomberg Opinion, Kocherlakota offered this perspective, So, the Fed has been falling short — arguably well short — of both its inflation and employment mandates for a long time. How can it do better? It should take two steps.  First, as I’ve argued before, the Fed shouldn’t be reducing the vast holdings of bonds that it amassed in its efforts to stimulate the economy after the last recession. Instead, it should commit to increasing its asset holdings by about 4 percent per year. That way, as the economy grows over time, its balance sheet will remain sufficiently large to help combat any recessionary risks.  Second, the Fed often says that it sets monetary policy based on the incoming economic data. Such claims ring hollow when we look at the record. Recently released transcripts from its June 2013 policy-making meeting show that more than half the participants thought inflation would be below 2 percent for the next 30 months. All thought unemployment would stay above 5.5 percent. Yet it was precisely at that meeting that they agreed to begin tightening by announcing their intention to ease off on bond purchases in the near future.”  So, what can we expect from Wednesday’s decision by the Fed? Will we see a drop in rates? What will a higher interest rate look like and what would that mean for America’s economy? Or … if nothing changes and the Fed holds steady, what will that mean for the economy in the short term?  There are a lot of questions and that’s where the experts from the University of Rochester are available.  Dr. Narayana Kocherlakota was the President and CEO of the Federal Reserve Bank of Minneapolis from 2009-2015. As part of his responsibilities in that position, he served on the Federal Open Market Committee (FOMC), the monetary policymaking arm of the Federal Reserve System. He is currently a Lionel W. McKenzie Professor of Economics and is an expert in financial economics, interest rates and monetary policy. Narayana is available to speak with media regarding the economic effects of the shutdown – simply click on his icon to arrange an interview.  

The Fed Should Consider Lowering Rates say the Experts from University of Rochester

Video summary of Narayana Kocherlakota's June 27th speech in Big Sky, Montana. Re-thinking Leverage Subsidies.

View the full text at:  http://www.minneapolisfed.org/news_events/pres/speech_display.cfm?id=4692

Summary text:
These remarks represent my views, not necessarily those of others in the Federal Reserve System or on the Federal Open Market Committee. 

Last July, Congress passed the Dodd-Frank Act.  The Act's goal is "to promote the financial stability of the United States," and it envisions the Federal Reserve System as being integral to the fulfillment of this mission.  With that in mind, I offer two observations. 

The first is that household leverage and financial institution leverage both reduce financial stability.  Intuitively, when households take on larger mortgages, financial institutions that own those mortgages suffer greater losses from any fall in the value of the underlying home.    Similarly, financial institutions are less able to survive this fall in their asset values if they are highly leveraged.   Thus, leverage exacerbates the sensitivity of the financial system to declines in land prices.

Secondly, the U.S. tax code provides explicit incentives for leverage.  It encourages households to take on mortgage debt by allowing them to deduct mortgage interest payments from their taxable incomes.  The code also encourages corporations to finance through debt by allowing them to deduct interest payments from their taxable incomes.   In this way, our tax system provides incentives for activities that undercut financial stability.

All tax provisions have both costs and benefits.  But the recent financial crisis taught us that such crises are associated with enormous macroeconomic costs.   My main conclusion is that the costs of providing tax incentives for leverage are bigger than was generally perceived prior to the crisis.

What does this conclusion imply for tax policy?  I suggest that policymakers should consider two changes to the US tax code.  The first is to reduce the fraction of mortgage interest payments that households are allowed to deduct from their taxable incomes. The second is to reduce the fraction of interest payments that corporations are allowed to deduct from their taxable incomes.  Of course, policymakers should adjust the timing of these changes in light of prevailing macroeconomic conditions.

Kocherlakota: Summary - Re-thinking Leverage Subsidies - Narayana Kocherlakota

Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, presents an update on the economy from the perspective of a monetary policymaker in Minneapolis on January 9th, 2014.

Conversations with the Fed - Narayana Kocherlakota

On the Limits to Monetary Policy
Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis

2nd Annual Hyman P. Minsky Lecture
Washington University, St. Louis, Missouri
March 20, 2012

Summary and slides at http://www.minneapolisfed.org/news_events/pres/speech_display.cfm?id=4839

Kocherlakota speech. On the Limits to Monetary Policy

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