The American Economic Association (AEA) celebrated former Federal Reserve Chair and Brookings Distinguished Senior Fellow Ben Bernanke’s contributions to economics at a session at the AEA annual meeting in January. Moderated by Christina Romer, professor emeritus at the University of California, Berkeley, the panel featured presentations by Mark Gertler of New York University, Mary Daly, president of Federal Reserve Bank of San Francisco, Emi Nakamura of Berkeley, and Peter Rousseau of Vanderbilt University and secretary-treasurer of the AEA.
Gertler, Bernanke’s long-time collaborator, presented Bernanke’s work advancing understanding of the Great Depression. When Bernanke began writing about the Depression in the 1980s, the lesson of Milton Friedman and Anna Schwartz—that excessively tight monetary policy allowed the Depression to take hold—was widely accepted among economists. Bernanke’s contribution was to realize that the monetary story was incomplete. By themselves, monetary factors could not account for the shocking depth and persistence of the Depression. Bernanke posited that the monetary contraction and the ensuing deflation set off a credit crisis, with both lenders and borrowers experiencing severe financial distress. The resulting breakdown of credit markets made credit expensive and hard to obtain for all but the strongest borrowers, lengthening and deepening the Depression. Bernanke and coauthors, including Gertler, later expanded these ideas to show how changes in the financial conditions of borrowers and lenders and the resulting changes in the efficiency of credit intermediation can amplify shocks in the real economy. The Nobel Committee cited much of this work in awarding Bernanke a portion of the 2022 Nobel Memorial Prize in Economic Sciences.
Daly, a veteran of the Federal Reserve System who worked her way from staff economist to president of the San Francisco Fed, described Bernanke’s impact on the Federal Reserve and his leadership through the Global Financial Crisis of 2007-2009. As the crisis deepened, he appreciated better than most the catastrophe in the real economy that would follow if financial markets seized, and he resolved not to repeat the mistakes of the Depression-era Fed. He guided the Fed as it introduced a menu of lending facilities to bolster liquidity and encourage otherwise timid lenders to participate. Most of these facilities relied on legal authority the Fed received early in the Depression but chose not to use. As Bernanke introduced new tools of monetary policy, he also revolutionized how the Fed communicated. During his term as chairman, the Fed introduced the Summary of Economic Projections and the now-famous dot plot, the post-meeting press conference, and the statement on longer-run goals known as the framework. The statement formalized the Fed’s 2% inflation target. Finally, Daly noted that Bernanke reformed the culture at the Federal Reserve by encouraging dissent and soliciting a broad range of views.
Nakamura, a leading macroeconomist and 2019 John Bates Clark medalist, discussed how Bernanke expanded the toolkit for monetary economists and policymakers. Bernanke was one of the economists who identified the short-term “Fed funds” rate as the key indicator of policy, as opposed to traditional measures of the money supply. This change reflected the growing view, largely spurred by Bernanke’s work on credit, that monetary policy affected the real economy through more than just short-term interest rates. He participated in the early literature using high-frequency data and rate surprises to estimate the effects of monetary policy on financial markets and the economy. High-frequency methods are still widely used to untangle the effects of monetary policy. Bernanke also studied the idea of an inflation target, which the Fed adopted during his term as chair, before joining the Board of Governors. After leaving the Fed, Bernanke worked on the empirical and theoretical case for Quantitative Easing (QE) both to understand its effects on the post-GFC recovery and its potential future use. Nakamura argues that, if not for the expanded toolbox Bernanke gave the Fed, the onset of COVID would have ended in a financial crisis.
Rousseau, who has been the AEA’s top staffer since 2012, spoke about Bernanke’s contributions to the association as its vice president, president, and editor of its flagship publication, the American Economic Review (AER). While leading the AER, Bernanke oversaw the transition to an entirely digital editorial process and the resultant 33% increase in submissions. Bernanke also worked to improve the professional climate in economics as the president of the AEA. Under his leadership, the AEA updated its professional code of conduct, officially adopted an anti-harassment policy, fielded the first professional climate survey to gauge AEA member attitudes, increased vetting for positions of power within the AEA, and created the AEA Ombuds Team to handle complaints and advise those suffering discrimination or harassment. Bernanke oversaw increased outreach to young people and underrepresented groups and led the AEA through the introduction of EconTrack, a higher-quality alternative to existing job forums for economists.
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Commentary
Ben Bernanke’s contributions to economics
January 17, 2025