The Market For Central Bankers

As any central bank worth its salt would tell you, barriers to labor mobility are inefficient and reduce growth. Under the circumstances, it ought to be common for central bankers who succeed in helming monetary policy at small countries are regularly offered jobs steering larger economies. In practice, it rarely happens so the idea that the Bank of England is considering trying to poach the Bank of Canada’s chief to be its new head strikes people as somewhat outlandish.

But I think the limited successes and substantial failures of the Ben Bernanke Era in the United States tend to illustrate that practical central banking experience is an important qualification for a central banker. After all, the signature of the Bernanke Fed has been the failure to apply Professor Bernanke’s monetary prescriptions. One interpretation of that is that Chairman Bernanke has learned valuable practical lessons that were unavailable to Professor Bernanke, and that straightforwardly implementing Professor Bernanke’s ideas would have been dangerous and misguided. Another interpretation that I find more plausible is Lawrence Ball’s notion that Bernanke basically chickened out when faced with opposition from the full-time staff. But either interpretation bolsters the idea that practical experience grappling with with institutional issues is extremely valuable. Promising academic monetary theorists should probably get tryouts at small countries and only come to DC or Frankfurt once they’ve proven themselves. The past five years, meanwhile, suggest that the ECB, Bank of Japan, and Federal Reserve should be scrambling to hire monetary policymakers from countries such as Israel, Australia, Sweden, Canada, and Switzerland that have succeeded in stabilizing their macroeconomies while larger monetary units have failed.