Latest news with #Yellen
Time of India
a day ago
- Business
- Time of India
Instant Scholar - Former fed reserve chief Janet Yellen's 1971 PhD thesis: Why her 'disequilibrium' view of open economies still matters
Janet Yellen 's doctoral work at Yale , 'Employment, Output and Capital Accumulation in an Open Economy: A Disequilibrium Approach' (1971), offers an early framework for understanding jobs, prices, and cross-border capital flows when markets do not clear. More than five decades on, its core ideas help explain policy choices she later made as US Fed chair and now as US Treasury secretary. Long before she steered America's central bank and then the US Treasury through turbulent years, Janet Yellen set out to answer a deceptively simple question that still vexes policymakers. What happens to employment, output, and investment when an economy that trades with the world is knocked off balance and stays there for a while, rather than snapping back to tidy textbook 'equilibrium'? Her 1971 PhD thesis at Yale confronted this head-on, building a framework in which wages can be sticky, prices adjust slowly, capital accumulation takes time, and cross-border flows transmit shocks instead of smoothing them away. Although the original dissertation circulates mostly in academic repositories and library catalogues, its themes are clear from the title and from Yellen 's early research agenda. The work sits in the Keynesian tradition that pays attention to short-run demand shortfalls and frictions, yet it pushes beyond closed-economy models by embedding those dynamics in an open setting with trade and finance. That move matters because open economies are exposed to imported inflation, volatile capital flows, and exchange-rate swings. A framework that assumes instant clearing misses the way these forces can keep unemployment elevated or investment subdued even when headline growth looks steady. What 'disequilibrium' means in practice At the heart of Yellen's approach is the idea that markets can be out of balance for meaningful periods. Wages may not fall quickly when demand weakens; firms may face capacity limits, financing constraints, or simply uncertainty that delays hiring and capital spending; banks and investors may ration credit rather than let interest rates jump to levels that would purportedly clear the market. In such a world, policy choices and external shocks have asymmetric effects. A fall in export demand or a rise in global interest rates can push employment down more quickly than it recovers once conditions improve. By placing capital accumulation in the title, Yellen drew attention to the slow-moving stock of productive assets. Investment does not instantly respond to price signals; it depends on profits, access to credit, and expectations about future demand. The path of capital formation therefore shapes medium-term output and jobs. When the economy is open, the cost of capital is also influenced by foreign rates and risk sentiment. A disequilibrium lens makes room for these channels and asks how they interact with sticky wages, administered prices, and trade flows. Open-economy transmission under frictions In neat models, the exchange rate and interest rates adjust in a way that keeps employment near a natural level. In the disequilibrium world Yellen analysed, the transmission is messier. Depreciation can lift net exports, yet the pass-through to domestic prices can erode real incomes. If banks tighten credit in response to external stress, firms may cut investment even as exports rise, muting the overall boost. Capital inflows do not always finance productive expansion; in downturns they can reverse abruptly, forcing sharper domestic adjustments. This helps explain why policy coordination and credible frameworks matter. When domestic monetary and fiscal choices interact with global finance under frictions, the sequence and mix of policies can change outcomes. Support for demand can safeguard employment and investment paths; credible disinflation plans can anchor expectations so that wage and price stickiness does not turn a relative-price shock into a broader spiral. Why this early work foreshadowed Yellen's policy style Observers often describe Yellen's policy instincts as pragmatic and data-driven. The intellectual roots trace back to this thesis period. A disequilibrium mindset encourages policymakers to look for real economy slack, labour-market scarring, and credit bottlenecks rather than assuming that prices will do all the work. At the Federal Reserve, Yellen's emphasis on labour-market indicators beyond the headline unemployment rate, and her attention to wage growth and participation, fit the thesis's spirit. At Treasury, her push for international cooperation on recovery and her focus on financial-stability channels echo the open-economy concern that shocks propagate through trade and capital flows under frictions. It also illuminates her stance on inflation and jobs. A disequilibrium view does not dismiss inflation risks, but it treats them as contingent on expectations, bargaining structures, and supply constraints. That leads to calibrated responses that weigh the costs of overtightening on employment and investment against the need to restrain price pressures. The trade-offs are empirical; the mechanism is not automatic. Reading the thesis through today's shocks Three recent themes make Yellen's framework feel current. First, supply-driven inflation. When energy or food prices jump due to external events, an open economy imports a relative-price shock. In a sticky-wage, sticky-price environment, that shock can squeeze real incomes and suppress demand even as measured inflation rises. Policy then must navigate between supporting employment and preventing a drift in expectations. Second, capital-flow volatility. Rapid shifts in global rates can tighten domestic financial conditions even without policy moves at home. If credit frictions bind, investment can fall faster than theory predicts. Macroprudential tools, targeted liquidity support, and international swap lines recognise that disequilibrium margins matter. Third, the green and digital transitions. Large, lumpy investments with uncertain payoffs are precisely the kind of capital-accumulation problems where expectations and financing conditions drive outcomes. Policy clarity, public-private risk sharing, and stable external financing can tilt the path of capital formation, employment, and productivity. What the structure likely looked like Based on the norms of the period and the issues foregrounded in the title, the thesis likely combined: A theoretical model of an open economy with wage and price rigidities, financial constraints, and an explicit capital-accumulation equation. Comparative-statics or dynamic analysis showing how external price or interest-rate shocks move employment and output when markets do not clear quickly. A discussion of policy levers, including fiscal expansion, monetary accommodation or tightening, exchange-rate regimes, and controls or prudential measures affecting capital flows. Empirical context or calibration to illustrate the magnitudes, though early-1970s data and methods would have limited estimation scope compared to modern practice. Even without the full text, this scaffolding fits Yellen's early published work and the Keynesian-open economy lineage. The contribution was not to claim that economies never return to balance, but to show that the path back matters for jobs and investment, and that policy can shorten costly detours. Limits and debates A disequilibrium approach, especially in early vintage models, draws criticism on two fronts. First, microfoundations. Later generations demanded explicit optimisation by firms and households, rather than behavioural rules that embed stickiness. Second, expectations. Credibility and forward-looking behaviour can alter the impact of policy, and early models often treated expectations in reduced form. Those critiques led to rich research programmes that formalised frictions while keeping the practical insight that adjustment is slow and uneven. Yet the lived experience of crises keeps vindicating the core message. From the oil shocks of the 1970s to the global financial crisis, the pandemic, and energy price spikes, economies spend time away from neat equilibria. Labour markets can heal slowly after recessions; investment lags can weigh on productivity; capital-flow surges and stops can transmit foreign stress. A framework that takes these realities seriously remains useful to policymakers. Why it belongs in today's policy conversation Yellen's dissertation shows that the divides between monetary, fiscal, and international policy are artificial in real time. Under frictions, the mix and timing matter. Coordinated fiscal support during deep demand shocks can preserve human capital and firm balance sheets; monetary policy can lean against overheating or support credit markets; financial regulation can curb vulnerabilities that amplify external shocks. Exchange-rate policy and international cooperation add another layer in open economies where spillovers are large. For students and reporters, the thesis is also a reminder that policy leaders often carry durable analytical priors from their early training. Yellen's later emphasis on labour-market dynamics, careful sequencing, and international coordination reflects the questions she studied as a doctoral researcher. The path from seminar room to cabinet table is not linear, yet the through-line is clear. Access and research use The dissertation was submitted to Yale University in 1971. Publicly accessible PDFs are hard to find, since many US doctoral theses from that period are housed in subscription repositories or library archives. Researchers typically access such work through university libraries, interlibrary loans, or dissertation databases. For journalists, the absence of a public PDF does not block coverage; the title, academic context, and the author's subsequent publications provide enough footing to explain the core ideas and their policy relevance. Janet Yellen's PhD thesis framed an open economy that can get stuck away from tidy balance, where wages, prices, credit, and investment adjust slowly and external shocks bite hard. That lens helps decode both her academic trajectory and her later record as a policymaker who weighed employment outcomes, financial frictions, and international spillovers with care. It is a half-century-old work that still offers a clear guide to the messy world policymakers actually face. Read full document: 'Instant Scholar' is a Times of India initiative to make academic research accessible to a wider audience. If you are a Ph.D. scholar and would like to publish a summary of your research in this section, please share a summary and authorisation to publish it. For submission, and any question on this initiative, write to us at instantscholar@ Ready to navigate global policies? Secure your overseas future. Get expert guidance now!
International Business Times
6 days ago
- Business
- International Business Times
Trump Even Considered Re-Appointing Janet Yellen as Fed Chair in Jerome Powell's Place, Treasury Secretary Scott Bessent Says
President Trump is keeping a "very open mind" regarding a successor for Federal Reserve Chairman Jerome Powell and has even considered Janet Yellen for the role, Treasury Secretary Scott Bessent revealed on Tuesday. Trump has been critical of Powell and has called for his resignation for not implementing interest rate cuts, which is weighing on the economy. Powell's tenure as chairman of the U.S. central bank is set to end in May 2026, and the Trump administration—already conducting interviews with prospective candidates—is casting a "very wide net" in seeking his successor, Bessent told Fox Business host Larry Kudlow. The Fed left interest rates unchanged in its September meeting. Trump Adamant About Change Donald Trump X "The president has a very open mind. He even considered re-appointing Janet Yellen, so we want to see what everyone's thinking," Bessent said when asked who Trump is eyeing to replace Powell. "It's not ideological, it's about economics, what's best for the American people, what's best for the economy," Bessent argued. "And as I talk to the candidates, I'm looking at three things: monetary policy, regulatory policy, and the ability to run and revamp the organization, because it's really gotten bloated and I think this bloat puts its monetary independence at risk." Janet Yellen Twitter Yellen, 79, led the Federal Reserve as chair from February 2014 to February 2018, serving under former President Barack Obama and continuing into the early part of Trump's first term. She later held the position of Treasury Secretary throughout former President Joe Biden's single term. Yellen recently criticized Trump's decision to fire Erika McEntarfer, the Biden-appointed former head of the Bureau of Labor Statistics, following allegations that the agency had been misreporting and miscalculating employment figures. "This is the kind of thing you would only expect to see in a banana republic," Yellen told the New York Times last week. Trump Has Many Options As Treasury Secretary, Yellen strongly supported Biden's approach to managing the US economy amid high inflation and voiced criticism of policies from the Trump administration. "Our economic agenda is far from finished," Yellen told the Economic Club of Chicago in January 2024. Federal Reserve Chairman Jerome Powell X "Our country's infrastructure has been deteriorating for decades," she continued, adding that "in the Trump administration, the idea of doing anything to fix it was a punchline." The former Fed chair argued that "past measures like the Trump administration's Tax Cuts and Jobs Act increased the deficit by $2 trillion while doing little to spur investment." Trump is reportedly evaluating up to 10 candidates to succeed Powell next year. Scott Bessent X Candidates under consideration include former St. Louis Fed President James Bullard; Marc Sumerlin, a former economic adviser to President George W. Bush; National Economic Council Director Kevin Hassett; former Fed Governor Kevin Warsh; and current Fed Governor Christopher Waller, according to the Wall Street Journal. Trump has criticized Powell for months over his refusal to lower interest rates, dubbing him "Too Late Powell." On Tuesday, the president even threatened legal action against the chairman, accusing him of doing a "grossly incompetent job" in overseeing a $2.5 billion renovation of the Federal Reserve's Washington, DC, headquarters—a project Trump insists "should have been a $50 million fix-up."
New York Post
6 days ago
- Business
- New York Post
Treasury Secretary Scott Bessent says Trump considered re-appointing Janet Yellen as Fed chair
President Trump has a 'very open mind' about who should replace Federal Reserve Chairman Jerome Powell and he's even considered Janet Yellen for the post, Treasury Secretary Scott Bessent revealed Tuesday. Powell's term as chairman of the US central bank expires in May 2026, and the Trump administration – already interviewing potential replacements – is casting a 'very wide net' in the search for his replacement, the treasury secretary told Fox Business host Larry Kudlow. 'The president has a very open mind,' Bessent said, when asked who Trump is eyeing to replace Powell. 'He even considered re-appointing Janet Yellen, so we want to see what everyone's thinking,' he added. 3 Trump is casting a 'very wide net' in search of candidates to replace Powell come next May, Bessent said. AFP via Getty Images 'It's not ideological, it's about economics, what's best for the American people, what's best for the economy,' Bessent argued. 'And as I talk to the candidates, I'm looking at three things: monetary policy, regulatory policy, and the ability to run and revamp the organization, because it's really gotten bloated and I think this bloat puts its monetary independence at risk.' Yellen, 79, served as chair of the Federal Reserve between February 2014 and February 2018, under former President Barack Obama and through the first year and change of Trump' first term in the White House. She also served as treasury secretary for all of former President Joe Biden's one term in office. Yellen recently slammed Trump's decision to fire Erika McEntarfer, the Biden-appointed former head of the Bureau of Labor Statistics, over accusations the agency had been manipulating and miscalculating employment data. 'This is the kind of thing you would only expect to see in a banana republic,' Yellen told the New York Times last week. 3 Yellen, a former Biden administration Cabinet member, has been critical of Trump. REUTERS As treasury secretary, Yellen also staunchly defended Biden's handling of the inflation-ravaged US economy and criticized Trump-era policies. 'Our economic agenda is far from finished,' Yellen told the Economic Club of Chicago in January 2024. 'Our country's infrastructure has been deteriorating for decades,' she continued, adding that 'in the Trump administration, the idea of doing anything to fix it was a punchline.' The former Fed chair went on to claim that 'past measures like the Trump administration's Tax Cuts and Jobs Act increased the deficit by $2 trillion while doing little to spur investment.' 3 The Trump administration is in the process of interviewing candidates to replace Powell as Fed chairman. Getty Images Trump is reportedly considering as many as 10 people to replace Powell come next year. Former St. Louis Fed President James Bullard; former economic adviser to President George W. Bush, Marc Sumerlin; National Economic Council director Kevin Hassett; former Fed governor Kevin Warsh; and current Fed governor Christopher Waller are among the candidates the president is considering, according to the Wall Street Journal. Trump has raged against Powell for the last several months over his refusal to cut interest rates, nicknaming him 'Too Late Powell.' On Tuesday, the president threatened to sue the chairman over the 'grossly incompetent job' he has done in managing a $2.5 billion renovation project at the Federal Reserve headquarters in Washington, DC, which the president claims 'should have been a $50 Million Dollar fix up.' Trump named ally Stephen Miran, a member of his Council of Economic Advisers, to the Fed Board last week, to replace Fed Governor Adriana Kugler, who abruptly resigned. Bessent noted that when Powell is replaced as chairman, Trump will have 'a majority of the board in DC.' 'An important thing to remember is we have two seats' Trump is looking to fill, Bessent told Kudlow. 'So there's the seat for the chair and then there will be another appointee joining — so we actually get two appointments and President Trump will have a majority of the board in DC.' The White House did not immediately respond to The Post's request for comment.
NBC News
12-06-2025
- Business
- NBC News
Yellen expects Trump's tariffs will hike inflation to 3% year over year
Former Treasury Secretary Janet Yellen predicts President Donald Trump 's tariffs will cause prices to rise and average household income to fall, despite a slowing trend in the U.S. inflation rate. 'I would expect inflation, on a year-over-year basis of this year, to shoot up to at least 3%, or slightly over, because of the tariffs,' Yellen said Thursday on CNBC's ' Money Movers.' The Biden-era Cabinet secretary made that prediction even as she noted that when it comes to Trump's tariffs, 'There remains a huge degree of uncertainty about exactly what is going to go into effect.' But 'I definitely expect that we're going to see them impact pricing,' she said. That will lower average household income, Yellen added. 'The most recent and optimistic estimate I've seen suggested that the average household will see on the order of $1,000 reduction in income,' due to tariffs and their knock-on effects, she said. 'It could be greater than that, depending on how things play out with the tariff program,' she said. The comments came as data from the U.S. Bureau of Labor Statistics has shown the inflation rate rising less than expected in recent months. Trump has pointed to that trend to fuel his latest attacks on Federal Reserve Chair Jerome Powell to lower interest rates. At the White House later Thursday, Trump slammed Powell as a ' numbskull.' Trump's allies, meanwhile, have argued that tariffs do not contribute to inflation. Yellen, who also served as Fed chair from 2014 to 2018, said the central bank should right now 'worry about the possibility of second-round effects or wage increases or inflation expectations feeding into continued inflation.' The Fed does not have a 'good handle on how the tariffs are going to affect either spending in the labor market or inflation,' she said. 'So I would expect them to remain firmly in latency territory,' she added, suggesting that the Fed is likely to continue its wait-and-see approach.
CNBC
12-06-2025
- Business
- CNBC
Yellen expects Trump's tariffs will hike inflation to 3% year over year
Former Treasury Secretary Janet Yellen predicts President Donald Trump's tariffs will cause prices to rise and average household income to fall, despite a slowing trend in the U.S. inflation rate. "I would expect inflation, on a year-over-year basis of this year, to shoot up to at least 3%, or slightly over, because of the tariffs," Yellen said Thursday on CNBC's "Money Movers." The Biden-era Cabinet secretary made that prediction even as she noted that when it comes to Trump's tariffs, "There remains a huge degree of uncertainty about exactly what is going to go into effect." But "I definitely expect that we're going to see them impact pricing," she said. That will lower average household income, Yellen added. "The most recent and optimistic estimate I've seen suggested that the average household will see on the order of $1,000 reduction in income," due to tariffs and their knock-on effects, she said. "It could be greater than that, depending on how things play out with the tariff program," she said. The comments came as data from the U.S. Bureau of Labor Statistics has shown the inflation rate rising less than expected in recent months. Trump has pointed to that trend to fuel his latest attacks on Federal Reserve Chair Jerome Powell to lower interest rates. At the White House later Thursday, Trump slammed Powell as a "numbskull." Trump's allies, meanwhile, have argued that tariffs do not contribute to inflation. Yellen, who also served as Fed chair from 2014 to 2018, said the central bank should right now "worry about the possibility of second-round effects or wage increases or inflation expectations feeding into continued inflation." The Fed does not have a "good handle on how the tariffs are going to affect either spending in the labor market or inflation," she said. "So I would expect them to remain firmly in latency territory," she added, suggesting that the Fed is likely to continue its wait-and-see approach.
