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Misplaced childhood: When recession children grow up as central bankers

Abstract : We examine how much an early – i.e., childhood – experience of recession influences the behavior of central bankers. We develop a model of decision making by a committee whose leader and members exhibit recession aversion due to their personal experience. The model reveals that recession aversion could lead to a reluctance of the policymaker to increase policy rates. In a panel multinomial logit model for nine major central banks analyzed over the period 1999–2015, we find that growing-up in a recession influences monetary policy-making. Central bankers’ early personal experiences of recessions shape their policy reactions, increasing the willingness to cut policy rates, with policy-relevant magnitudes. The results are robust to alternative behavioral hypotheses, accounting for a number of control variables or sample variation.
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https://hal.archives-ouvertes.fr/hal-02502635
Contributor : Isabelle Celet <>
Submitted on : Monday, March 9, 2020 - 2:04:09 PM
Last modification on : Tuesday, March 10, 2020 - 1:37:53 AM

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Etienne Farvaque, Franck Malan, Piotr Stanek. Misplaced childhood: When recession children grow up as central bankers. Journal of Economic Dynamics and Control, Elsevier, 2020, 110, pp.103697. ⟨10.1016/j.jedc.2019.05.004⟩. ⟨hal-02502635⟩

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