A former Stanford professor, Narayana Kocherlakota, has just been named chief of the Minneapolis Federal Reserve branch. Kocherlakota was a professor at Stanford from 2002 to 2005 before returning to the University of Minnesota to head the economics department there. He has written a number of papers on a variety of macroeconomic topics, but perhaps the work that will most impact his tenure at the Fed is his work on asset pricing and bubbles, including a paper on bubbles and debt and another on why equity returns outpace returns on safer assets. As the Fed retools to focus on the current crisis and, more importantly, as it comes out of the crisis and faces the future, it must decide how it should respond to asset bubbles. The former Fed President at the Minneapolis branch, Gary Stern, was a vocal proponent of doing more about asset bubbles, saying in March 2008 that:
It is well within the realm of possibility for policy makers to build support for, and at least obtain tolerance of, policies designed to address excesses.
Kocherlakota’s exact view on such policies are as yet uncertain, but they will certainly come into play as the Fed looks forward and works on achieving more macroeconomic stability in the future.