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Misplaced childhood: When recession children grow up as central bankers

Etienne Farvaque (), Franck Malan and Piotr Stanek ()

Journal of Economic Dynamics and Control, 2020, vol. 110, issue C

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.

Keywords: Central banking; Committees; Recession aversion; Discrete choice modeling; Behavioral economics (search for similar items in EconPapers)
JEL-codes: E58 D03 D78 E31 E52 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:110:y:2020:i:c:s0165188919300752

DOI: 10.1016/j.jedc.2019.05.004

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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