a blog

by Josh Nicholas

Monetary policy

The path dependency of higher education

An interesting paper by Etienne Leppers at the LSE suggests that where central bankers (specifically, those on the Federal Open Market Committee of the the US Federal Reserve) were educated has a "systematic impact" on the way they vote on monetary policy.

This is true even considering the more than four decades that have elapsed since Chairwoman Janet Yellen got her PhD.

"graduate training in economics is the first place for the formation of biased preferences, because of the substantial ideological sorting that exists across universities."

"The literature on the determinants of central bankers’ voting behaviour has already revealed that governors do not simply respond to economic variables and models’ outputs. They are influenced by deliberation, by the chairman, by politics through appointment choices and by pressures in and out of election times; and by their pre-central-bank career and post-central-bank career plans. In this paper, the analysis is extended to include yet one more variable: ideologically influenced academic training."

Economics may be a special case here, as there is significant debate in some areas, with identifable ideological "camps". And, in America at least, certain universities can be clearly identified with schools of thought.

"Robert Hall already drew in 1976 a clear ideological and methodological line between two schools: the freshwater school (Midwest of the US: e.g. Chicago or Minnesota), for which the government is not capable of reviving the economy because fluctuations come from supply shifts as opposed to the saltwater school (in coastal US universities: e.g. Berkeley, Harvard or Princeton) which focuses on stimulating demand through government policies."

But I am still astounded at the sheer length of time over which this effect can be observed. It goes to show how much an impact not only early ideas and influences can have, but social connections too. Your mentors, your friends, your favourite books and first job... Your choice of university is huge.

"...earlier professional life is not the most important period for the formation of inflation preferences. Instead, we try to demonstrate the role of academic training and the socialisation that happens not in the different types of careers, but in the different types of universities."

Can you think of any biases that still hang around from your university days?