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Christopher Phelan, economist

Christopher Phelan, an economist at the Federal Reserve Bank of Minneapolis, is one of 10 newly hired faculty in the University's economics department.

Neither standard nor poor

Ten original and outstanding faculty join the economics department

By Deane Morrison

July 13, 2007

A few years ago, Stanford University economics professors Narayana Kocherlakota and Patrick Bajari taught a doctoral student named Minjung Park and rated her among the very top students they had seen. Today, Park is about to join them on the faculty of the University of Minnesota economics department, where Kocherlakota and Bajari have already spent a year. Park, whose credentials won her a spot even though she had yet to receive her doctorate, is among 10 new hires just announced for the department. The newcomers will boost the faculty to 27 full-time positions, says Kocherlakota, who chairs the department. The hires fall in the areas of macroeconomics, industrial organization, and economic theory. "We were already typically ranked as one of the top five departments worldwide in macroeconomics," says Kocherlakota. "We have added two high-quality full professors in this field, which will only enhance this reputation." A third macroeconomist, Fatih Guvenen, will arrive in January. The other nine new faculty will start this fall. The competition was stiff, from institutions like UCLA and the University of Pennsylvania. Guvenen, now of the University of Texas at Austin, even turned down a tenured appointment offer from Washington University to come to Minnesota as an untenured assistant professor. Perhaps the biggest fish landed in this catch is macroeconomist Jose-Victor Rios-Rull of the University of Pennsylvania, who will hold the Carlson Chair in the department and whom Kocherlakota calls "one of the world's greatest computational economists." Macroeconomics deals with nationwide issues such as inflation, unemployment, the gross national product, and federal tax policies. Traditionally, says Kocherlakota, models used to predict outcomes of changes in such entities made simplifying assumptions--namely, that affected persons were of uniform wealth, education, and so on, and belonged to only one sex.

"Economics is about the study of human behavior in the face of scarcity. Almost any social problem has this angle. I find it fascinating because it provides systematic and analytic tools to approach these problems."--Narayana Kocherlakota

But Rios-Rull, whose doctorate is from the University of Minnesota, is introducing heterogeneity into such models and looking at how that changes conclusions about, for example, the effects of policies like Social Security. The influx of economics faculty will also strengthen longstanding research collaborations between the department and the Federal Reserve Bank of Minneapolis. The fruits of such ties include findings that may influence policy-making across the nation, according to Art Rolnick, senior vice president and director of research at the bank. "Examples of the effects of theory on the practice of policy include increased central bank independence and adoption of inflation targeting and other rules to guide monetary policy," say University economics professors V.V. Chari and Patrick Kehoe. Kehoe is also a staff economist, and Chari a consultant, in the bank's research department.

The next generation

Besides the sheer quality of the hirees, the economics department faculty is happy to have a healthy contingent of younger people. No matter what the field or how distinguished it may be, a department consisting of mostly senior faculty will face a traumatic turnover if it fails to hire fresh talent before retirements start piling up. That's why the 10 new faculty include five assistant and three associate professors, "none more than 10 years out of graduate school," according to Kocherlakota.

Here they come

The 10 new economics faculty hires, their specialties and faculty ranks:

Jose-Victor Rios-Rull, macroeconomics, Carlson Chair and professor

Christopher Phelan, macroeconomics, professor

Kim-Sau Chung, economic theory, associate professor with tenure

Ichiro Obara, economic theory, associate professor with tenure

Amil Petrin, industrial organization, associate professor with tenure

Fatih Guvenen, macroeconomics, assistant professor

Kyoo-il Kim, econometrics and industrial organization, assistant professor

Minjung Park, industrial organizational and financial economics, assistant professor

David Rahman, economic theory, assistant professor

Itai Sher, economic theory, assistant professor

The new breed of economists brings fresh ideas and tackles questions that may seem unanswerable. For instance, incoming associate professor Amil Petrin asked how much it's worth to people to have minivans available. Another way of framing the question is to ask how much people are willing to give up, say through taxation, to move to a location where nothing is different except that minivans are now available. It's really a question about how beneficial a new product is or isn't, and Petrin found a way to approach it. "It was extraordinary work," says Kocherlakota. "He had to collect new data sets, perform new statistics and find a new way of analyzing data. He found the benefits [to having minivans] substantial." It turned out that having the minivan available lowered some of what's called market, or monopoly, power of people selling existing cars, Kocherlakota explains, and lowering monopoly power is always a good thing. Equally impressive was the work of Park, who presented her work on the phenomenon of mergers to the economics faculty. It involved the use of "matching models," which economists use to think about issues like marriages. Mergers of companies are, of course, similar to marriages in many ways. "She's applying these models to think about motives for mergers and acquisitions," explains Kocherlakota. "The statistics of dealing with them is challenging. She had a clever way of dealing with these problems." Today, much of the "battle" in economics research is to keep models simple and free from too many variables, yet accurate," says Kocherlakota. "Economics is about the study of human behavior in the face of scarcity," he adds. "Almost any social problem has this angle. I find it fascinating because it provides systematic and analytic tools to approach these problems." As he looks over the new crop of economists heading for Heller Hall, his satisfaction is tempered by the conviction that the department must grow further still. "A department of 40 would not be unreasonable for a university this size," he says.