Dan Klein, editor of Econ Journal Watch, brings to my attention an article by Lawrence White in the latest (August) issue, titled  "The Federal Reserve System's Influence on Research in Monetary Economics."  I have previously written here about my opinion regarding the Federal Reserve Banks' contributions to bringing several really big ideas to bear on the policy process, but Professor White's article concentrates on the influence of the Federal Reserve on the profession at large.

I might be expected to have some prejudice on the topic, but I still have to say I'm pretty impressed.  A sampling:

[In 2002] it engaged more than 120 leading academic economists as consultants and visiting scholars, and conducted some 30 conferences that brought 300-plus academics to the podium alongside its own staff economists. It published more than 230 articles in its own research periodicals. Judging by the abstracts compiled by the December 2002 issue of the e-JEL, some 74 percent of the articles on monetary policy published by US-based economists in US-edited journals appear in Fed-published journals or are co-authored by Fed staff economists. Over the past five years, slightly more than 30 percent of the articles by US-based economists published in the Journal of Monetary Economics [JME] had at least one Fed-based co-author. Slightly more than 80 percent had at least one co-author with a Fed affiliation (current or prior Fed employment including visiting scholar appointments) listed in an online vita. The corresponding percentages for the Journal of Money Credit and Banking [JMCB] were 39 percent and 75 percent. The editorial boards (editors and associate editors) of these journals are even more heavily weighted with Fed-affiliated economists (9 of 11, and 40 of 46, respectively). 

If anything, some of those numbers may be on the low side.  In looking through the appendix listing Fed affiliations of JME and JMCB editors, I noted several who are, or have been, Cleveland Fed  visiting scholars who are not identified as such for the year in question: Mark Bils (listed as having no Fed affiliation), Peter Ireland (listed as "ex staff" only), and Marty Eichenbaum, Richard Rogerson, Steve Williamson, and Chris Waller (who are counted in the tally through other Bank associations).

One of the article's themes is that this influence can be a double-edged sword:

One possible influence is a simple “crowding out” effect: unless the supply curve of monetary economists is flat, incentives to study policy design within the context of the status quo monetary regime will crowd out research on alternative monetary regimes. But the influence may be more systemic than that. If academic research is subject to network effects—meaning that the larger the community of researchers who investigate a particular topic or take a particular approach, the greater the professional rewards to other researchers for doing likewise—then even those researchers outside the Fed’s direct sphere of influence will be indirectly influenced by its program. They know, for instance, that their research must pass muster with Fed-affiliated journal editors and referees...

Robert D. Auerbach (1985, 52), in an account of political influences on Fed policy-making, has commented that “censorship is present in a significant portion of the Federal Reserve research departments’ publications. Therefore, this voluminous research, distributed at little or no charge, should not be disguised as the work of an independent think tank.” Eugenia Toma and Mark Toma (1985) have argued that the Board of Governors used budgetary allocations to penalize two Reserve Banks (St. Louis and Minneapolis) whose research departments were relatively critical of the Fed’s policy-making.

Milton Friedman, as reported in a Minneapolis Fed magazine article on the Shadow Open Market Committee (Fettig 1993), “maintains that since the Federal Reserve Board and its district banks hire a large number of economists in the field of money, the central bank has a sort of oligopoly on monetary opinion. In other words, if you want to advance in the field of monetary research, according to Friedman, you would be disinclined to criticize the major employer in the field.

Valid points, but that view may overstate the homogeneity of views within the system.  A few examples:

-- I decided to join the Cleveland Fed after spending a year as a visitor in 1989.  At the time, Cleveland president Lee Hoskins was aggressively pursuing the  notion that zero inflation was the appropriate goal  of monetary policy.  This was decidedly not the party line, and yet we sponsored research conferences and published papers (in academic journals and internal vehicles) devoted to the idea.  We even had a spirited disagreement in print with a member of another Federal Reserve Bank (with whom we usually agreed).

-- Although the Federal Reserve is something of an outlier in that its official policy does not favor inflation targeting, you do not have to look very far to find contrary points of view expressed  openly, or major support for research activities devoted to the topic.

-- As I write, the Cleveland Fed is smack in the middle of a two-week workshop (organized by Randy Wright, Ed Nosal, and Peter Rupert) devoted to research that applies search-theoretic monetary models to a variety of questions about monetary policy, banking, and financial intermediation.  The payoff to this line of research in terms of direct applications to Federal Reserve policy making is still somewhat speculative and controversial.   It is not the stuff of "group think."

Still, the questions raised by Professor White are good ones, and he is completely fair in his approach.  The article is well worth a read.

P.S. to you PH.D. students out there: We are hiring.

Here are the citations for the articles referenced in the passages above:

Auerbach, Robert D. 1985. Politics and the Federal Reserve. Contemporary Policy Issues 3(Fall): 43-58.

Toma, Eugenia Fro edge, and Mark Toma. 1985. Research Activities and Budget Allocations among Federal Reserve Banks. Public Choice 45(2): 175-191.

Fettig, David. 1993. Shadowing the Shadows: The Shadow Open Market Committee has persistently, and faithfully, trailed its Federal Reserve namesake for 20 years. Federal Reserve Bank of Minneapolis The Region (June). On line: http://minneapolisfed.org/pubs/region/93-06/reg936b.cfm