Narayana Kocherlakota

Louis and Henry Epstein Professor of Business Administration at the Simon School of Business University of Rochester

  • Rochester NY

Professor Kocherlakota's research includes theoretical and empirical contributions to many fields in economics

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Spotlight

3 min

The Great Recession: The downturn that wouldn’t end

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.

Narayana KocherlakotaLisa KahnDavid Primo

2 min

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.

Narayana Kocherlakota

2 min

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.

Narayana Kocherlakota

Areas of Expertise

Central Banks
U.S. Federal Reserve
Dynamic Games/Contracts
Financial Economics
Economics of Money and Payments
Business Cycles
Public Finance
Monetary Policy
Interest Rates

Biography

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.

Education

The University of Chicago

Ph.D.

Economics

1987

Princeton University

A.B.

Mathematics

1983

Affiliations

  • NBER : Research Associate

Selected Media Appearances

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

CNBC  tv

2024-06-12

Our guest isn't expecting any rate cuts before the end of the year. Joining us is former Minneapolis Fed President Narayana Kocherlakota, now a professor of finance at the University of Rochester's business school.

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

NPR Marketplace  radio

2024-03-28

Former Minneapolis Fed President Narayana Kocherlakota said basically, the Fed needs to feel the way it felt at the end of 2023 when, for a solid half year, inflation was falling.

“It doesn’t have to get down to two by any means and in fact I think the Fed would like to start cutting rates before we get to two,” he said.

That means two-point-something is the goal. The Fed, of course, is not going to tell us what that “something” is. Kocherlakota said we’ve still got a bit to go.

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

US News & World Report  print

2024-03-20

Narayana Kocherlakota, an economics professor at the University of Rochester and former president of Federal Reserve Bank of Minneapolis, says that “there are still a lot of uncertainties” around the economy and the path of inflation.

“To what extent can we get gains on inflation without higher unemployment,” he asks. “We’ve made some of the progress we’ve made because of temporary factors” like improvements in supply chains.

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Selected Event Appearances

Keynote Address

ADBI Annual Conference  Tokyo, Japan

Keynote Address

Asia Economic Policy Conference  Federal Reserve Bank of San Francisco

Steine Lecture

Vanderbilt University  Nashville, TN

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Selected Articles

The future of the zero lower bound problem

Journal of International Money and Finance

Narayana Kocherlakota

2018

Thanks for the generous introduction. I also want to thank the organizers for their invitation to address you tonight. I view it as a huge honor to give a keynote address at this prestigious conference at one of my favorite research institutions. My subject is a natural one given our venue. In August 2016, John Williams, President of the Federal Reserve Bank of San Francisco, released a public statement1 emphasizing, and I quote, ‘‘the need to study and consider new approaches to fiscal and monetary policy.” My speech today is entitled, ‘‘The Future of the Zero Lower Bound Problem,” and should be viewed as a response to John’s call to action. During the first part of my speech, I’ll answer John’s call much as a policymaker would – viewing the zero lower bound problem as a largely technical consideration that the Fed and others must try to surmount as best they can. During the second part of my speech, I’ll answer John’s call more as an academic: by describing a simple and direct, but largely politically infeasible, approach to solving the problem.

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Practical Policy Evaluation

National Bureau of Economic Research

Narayana Kocherlakota

2018

In the wake of the Lucas Critique, the study of appropriate macroeconomic policy has largely focused on the comparison of different regimes/rules. In practice, few policymakers are faced with making those kinds of choices. In this paper, I examine the problem of a policymaker making but one in a long sequence of similar decisions (like to raise or cut interest rates by a quarter percentage point). I model the policymaker as playing a dynamic game against a forwardlooking private sector. My main result is that, under relatively weak conditions, the policymaker's optimal within-equilibrium response to the current state can be found by applying statistical regression methods to past macroeconomic data. Theory is only useful as a source of information about credible functional form restrictions on these regressions. Based on this result, I argue that macroeconomic policy evaluation intended to be of practical value should rely considerably less on putatively structural macroeconomic models and considerably more on regression-based approaches.

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

Journal of Economic Literature

Narayana Kocherlakota

2017

This essay discusses the structure and governance of the Federal Reserve System in light of the many changes in its activities over the past thirty years. Based on this analysis, it argues in favor of four specific reforms: clarification of Congressional expectations for the system; enhanced Federal Reserve Board of Governors transparency with respect to its oversight of the Reserve Banks; stripping monetary-policy votes from the President of the Federal Reserve Bank of New York and the Boards of Directors of the Reserve Banks; and the initiation of a public conversation about redesigning the Federal Reserve as a unified public entity.

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