While having a president with specialized training as a monetary economist would benefit the European Central Bank, such training is not essential. If Christine Lagarde is confirmed for the position, Europe will learn that other attributes matter much more.
CAMBRIDGE – The selection of the International Monetary Fund’s managing director, Christine Lagarde, to succeed Mario Draghi as the next president of the European Central Bank caught most observers by surprise. Now the critics are making up for lost time. Some commentators object that Lagarde lacks experience as a central banker. Others complain that she lacks an advanced degree in economics.
Politico reports that “the tightly knit central banking fraternity … is aghast.” Whether this is an exaggeration is unclear, given a lack of supporting evidence. But if the central banking fraternity really does have qualms, then it’s important to consider their arguments.
As a card-carrying member of the economics profession, I might be expected to join those who find fault with Lagarde’s lack of a PhD. There is no question that, all else being equal, technical training helps. With the development of high-tech financial markets, the conduct of monetary policy has become increasingly complex.
Past practices provide little guidance for formulating monetary policy today. Given the unprecedented decline of real interest rates, central bankers are more likely to find themselves at the zero lower bound, where conventional monetary policy is impotent. That means they have to understand the alternative mechanisms – the signaling, portfolio-balance, and risk-taking channels – through which unconventional policies work.
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