Tags: Bernanke | Shyness | Fed | Policy

Study Asks: Is Bernanke’s Shyness Driving Fed Policy?

Friday, 17 Feb 2012 08:00 AM

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Economists rarely venture beyond the facts and figures, particularly when it comes to finance, but one is asking if Federal Reserve Chairman Ben Bernanke’s personality is making a difference in how the country runs its monetary policy.

In a working paper published by the National Bureau of Economic Research, Laurence Ball, a professor at Johns Hopkins, asks if the gap between Bernanke’s positions as an academic and his actions as Fed chief can be explained by his purported shyness.

While a professor and later as a Fed Governor, Bernanke advocated for aggressive policies, including a target of inflation rate of up to 4 percent, Ball writes in the paper.
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He advocated for Japan to be more aggressive when faced with similar circumstances, yet policy by the Fed’s rate-setting committee, the FOMC, has been more cautious.

“The first possible factor is ‘group think’ at the FOMC, a tendency of Committee members to accept a perceived majority view rather than raise alternatives that might be unpopular. The second is Ben Bernanke’s personality, which is typically described as ‘quiet,’ ‘modest,’ and ‘shy’ — traits that might make him unlikely to question others’ views,” Ball writes.

Pressure from inflation hawks might be a factor, Ball points out. Bernanke also seems to believe that deflation — a self-reinforcing decline in prices that would merit a more forceful response by the Fed — isn't likely.

Yet Ball thinks these factors mean less in the end than Bernanke’s own personality in relation to those around him at the bank. He did appear to change his mind about zero bound by 2004, but becoming Fed chairman and dealing with other people in the process of setting policy also has played a role.

“The puzzle about this history is why Bernanke so quickly and completely dropped his previous views and adopted those of the Fed staff. We cannot be sure, but social psychology suggests two possible factors: group think and Bernanke’s shy personality,” Ball writes.

Interestingly, Bernanke is working hard to make sure that his tenure as Fed chief is among the most open in history, holding regular and frank session with the press and providing eye-opening testimony to Congress. He even has taken on the role of offering policy prescriptions in public, a huge change from the mandarin qualities of his predecessor, Alan Greenspan.

"The state of housing has been an impediment to a faster recovery," Bernanke recently told home builders in Orlando, Fla. "We need to continue to develop and implement policies that will help the housing sector get back on its feet."

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