Been There, Done That

President Barack Obama has nominated Stanley Fischer to the Board of Governors of the Federal Reserve Board, where he will succeed Janet Yellen as Vice-Chair of the Board. Fischer’s accomplishments are well-known. But he also brings an interesting set of credentials to the Board at a time when it has been criticized for ignoring the impact of its policies on other countries.

Fischer received his doctoral degree from MIT, and returned there after a stint on the faculty at the University of Chicago. During the 1970s and 1980s he taught or advised such future luminaries as Ben Bernanke, Greg Mankiw and Mario Draghi. He served as Vice President and Chief Economist of the World Bank from 1988 to 1990. He was the First Deputy Managing Director of the IMF from 1994 through 2001, a period when financial crises recurred on a regular basis in the emerging market countries.

Fischer’s experience with those crises gives him a perspective that macroeconomists who work only on the U.S. economy do not possess. Paul Krugman has written about how the financial instability of the post-Bretton Woods era has affected the views of those who follow these events. In 2009, for example, when our profession was castigated for not foreseeing the global financial crisis, Krugman wrote: “

…the common claim that economists ignored the financial side and the risks of crisis seems not quite fair – at least from where I sit. In international macro, one of my two home fields, we’ve worried about and tried to analyze crises a lot. Especially after the Asian crisis of 1997-98, financial crises were very much on everyone’s mind.

Similarly, in 2011 Krugman wrote:

Indeed, my sense is that international macroeconomists – people who followed the ERM crises of the early 1990s, the Latin American debt crisis, the Asian crisis of the late 90s, and so on – were caught much less flat-footed.

The IMF, of course, was widely criticized at the time for its crisis-management policies and its advocacy of deregulating capital flows.  In retrospect, Fischer’s arguments in favor of capital account liberalization appear overly zealous, and he has drawn criticisms for those positions. The IMF has recently adopted a more nuanced position on the use of capital controls as a macro prudential tool.

And yet—in 2000, after the resignation of the IMF’s Managing Director Michel Camdessus, Fischer, who was born in Rhodesia (now Zambia), was nominated to be Camdessus’ replacement by a group of African nations. (Miles Kahler presents the story in his Leadership Selection in the Major Multilaterals.) This was a challenge to the European governments that had always claimed the prerogative of naming the Managing Directors of the IMF since it commenced operations in 1945. But the nomination was also an indication of the respect that Fischer enjoyed amongst the African and other developing countries. In the end, it was impossible to change the IMF’s traditional governing procedures, and Horst Köhler of Germany became the new Managing Director.

After Fischer left the IMF, he went to work at Citigroup. In 2005 he was appointed Governor of the Bank of Israel, and served there until last year. Under his leadership the Bank received praise for its policies. Fischer was widely admired and received an “A” for his stewardship from the magazine Global Finance. Those pouring through his recent speeches and writings for indications of what he might do as a Federal Reserve Governor believe that he endorses the Fed’s accommodative stance, but may have a nuanced approach on the benefits and costs of forward guidance.

Stanley Fischer, therefore, brings several attributes to the Federal Reserve. First, he has an unquestioned command of macroeconomics, and in particular, monetary policy. Second, he has a wealth of experience in dealing with financial calamities. And third, he earned the trust and respect of policymakers in developing nations while he served at the IMF. Those qualities will be much appreciated as foreign officials and financial markets deal with the Federal Reserve’s policy pivot.

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6 thoughts on “Been There, Done That

  1. Ci Qu

    Mr. Fisher’s specialty lies in Macroeconomic and he clearly focus more on domestic economy. Due to his familiarity with US financial system and his experience with dealing financial crises, he becomes a qualified and needed candidate for supporting the current slow-recovering economy. I suppose it is a good balance between Jane Yellen and him since they can have both a domestic and international perspective when finding a solution to current economic issues.

  2. John Ferguson

    A timely reminder of Mr Fischer’s skills and experience as he joins the Fed. I particularly enjoyed the recent IMF conference in his honor. So many distinguished economists spoke so highly of him that this respect should help the Fed maintain its credibility as it grapples with forward guidance. It was also an excellent conference for any econ students, either undergrad or postgrad.

  3. Sophia Mo

    Really interesting point the respect that many emerging markets have for Mr. Fischer. If he does indeed become the Fed’s Vice chair, that could certainly be very reassuring for developing countries worried about how the Fed’s decisions might impact them. Though QE is normally seen as beneficial to emerging markets, recently Bernanke’s “taper talk” of cutting down QE has caused currency appreciation and growing current account deficits overseas, particularly in China and Singapore, so it would make sense that foreign countries are wary of the Fed’s actions and their implications outside of the US. However, it remains to be seen whether Mr. Fischer will indeed make the interests of emerging markets heard at the Fed, as his primary concern will no doubt be the recovery of the US.

  4. Nicole Blansett

    Fischer’s background in international economics seems particularly poignant now, in light of the recent criticisms of the effects of the Fed’s tapering on emerging markets.

    1. JPJ Post author

      I have read that Northern Rhodesia, where Fischer was born, is part of Zambia, while Southern Rhodesia, where his family moved to, is part of modern-day Zimbabwe.


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