By Narayana Kocherlakota
On July 1, I took over as chair of the Department of Economics, following Ed Foster. These are big shoes to fill. Ed has done a great job over the past six years, and the department and the University owe him a large debt of gratitude.
I thought I’d use this opportunity to tell you a little about myself, and in so doing, a little about the University of Minnesota. I got my Ph.D. in economics in 1987. My degree was from the University of Chicago, but Minnesota had a huge indirect impact on my Ph.D. education. My adviser was Lars Hansen, who received his Ph.D. from Minnesota in 1978. Two of the most exciting courses I took were taught by Robert Townsend, who received his Ph.D. from Minnesota in 1975. My experience with Lars and Rob has had an enormous impact on my research throughout my career.
The approach to economics that Lars and Rob taught us relied on the synthesis of economic theory and economic data. This synthesis is a hard one because the precision of economic theory doesn’t dovetail nicely with the messiness of economic data. Most economists end up cutting corners either in their use of theory or in how they use data because they can’t make them jibe together in a satisfactory way.
But Lars and Rob made the connection seem natural to us. I still remember learning principal-agent theory in one of Rob’s advanced courses and then using that advanced (remember, it’s the early eighties!) theory to understand feudal institutions in the next. This synthetic approach was (almost) unique to them among the Chicago faculty of the day. But after graduate school, as I met more and more economists trained at Minnesota, it became clear to me that this approach to economics was really a Minnesota approach to economics, not something special to Lars and Rob.
By the time I was ten years removed from my Ph.D., there was no place I respected or admired more than Minnesota. In some form or another, almost every part of economics that I used in my research came from there: mechanism design from Leo Hurwicz, rational expectations econometrics from Lars Hansen and Tom Sargent, and monetary economics from Robert Townsend and Neil Wallace. Moreover, I knew from my many Minnesota Ph.D. friends that Minnesota somehow magically inculcated in its Ph.D. students exactly the right attitude toward research: It’s important, frustrating, but most of all fun. It was without a doubt the highlight of my career when I joined the faculty here in 1998.
Enough about the past, though. Where does the department need to go in the future? Many of the positive attributes I stressed above are still firmly in place. We have a great Ph.D. program and a very strong undergraduate program. Our view of economics is still grounded in a synthetic view of theory and data. We’ve had some departures and some retirements, however; so our number-one task in the next couple of years is to hire more faculty members to continue to enhance the student experience and to compete with other highly ranked departments.
On that front, we’re very excited about the arrival of associate professor Fabrizio Perri and professor Patrick Bajari. Fabrizio specializes in international economics but has made contributions in a variety of other fields as well. Some of his most interesting work teaches new lessons about the ability of people in the United States to share income risk with one another.
Pat Bajari is a Minnesota student through and through. He got his B.S. in economics and mathematics here in 1992; then he received his Ph.D. in economics in 1997. His field of specialization is industrial organization. In his recent work, he has made enormous headway in the crucial problem of estimating models of strategic firm interaction in dynamic settings. More generally, it is hard to think of anyone working today who more completely epitomizes the Minnesota synthesis of theory and data than Pat.
The department is enormously proud of the continuing successes of our alumni. To cite but one of many, Luis Carranza (Ph.D. ’96) was recently named the finance minister in Peru. As it turns out, financial markets know the benefit of a Minnesota Ph.D: Peruvian bonds immediately rose to a nine-week high upon the announcement of Luis’ appointment.
This department has a glorious tradition. It would be impossible to maintain that tradition without the gifts we’ve received over the past years from our generous alumni and other friends. All we can say is: thanks!
I look forward to serving as department chair over the next three years. Feel free to call me or send me an e-mail if you have comments of any kind.
professor and chair