Gauti Eggertsson

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Gauti Eggertsson
Associate Professor of Economics
As a researcher at the Federal Reserve, Gauti B. Eggertsson gained real-world experience in how economic theories work. He wants to show students how theories they find in books really work in the world.

Most economists can offer their own theories on the cause of the current economic crisis, but there are fewer who can say they’ve actually lived it in the way that Gauti B. Eggertsson has. Working as a researcher at the Federal Reserve Bank of New York from 2004 until he arrived at Brown this fall, Eggertsson’s main job, with others in his group, was to provide advice to the bank’s president on setting interest rates and other policies in preparation for the regular meetings of the Federal Open Market Committee in Washington, D.C.

“There are a lot of long-standing instruments that the Fed has been using, and that was part of our policy advising: How to use those instruments and to research what their effects would be. We would model and estimate and look at where the economy is heading and base our advice on those projections. With the crisis, the Fed started implementing a host of new policies. Getting a grasp on their effect and recommending how to use them was a major challenge,” Eggertsson said.

Naturally, because of that experience, Eggertsson has some strong opinions on the cause of the crisis. “I think you could say that the recession is really a classic recession in the same way as the Great Depression in that it really reflects a collapse in aggregate spending. The implication is that the focus should be on policy to get spending going. [We are] cautiously optimistic, but it’s going to take a while for the economy to recover — and a lot is going to depend on the kind of policies that are going to be adopted in the next year or two. Conditional on those policies being adopted the right way, I think that there’s hope. I think there’s also room for some relatively large mistakes.”

The other component of Eggertsson’s job at the Fed was largely focused on independent research, and he has a wide-ranging collection of published papers to show for it. Much of his work prior to the crisis focused on theoretical work on optimal monetary policy. He applied those theories to study the mistakes made by policymakers during the Great Depression and the lessons that could be learned. Encouragement came from one of his Ph.D. advisers at Princeton — Ben Bernanke, the current Federal Reserve chairman and scholar of the Great Depression. Eggertsson said he doesn’t see much of his future research veering away from the crisis any time soon. He has two related papers coming out this fall: one on debt deleveraging and how it relates to the crisis in the United States, and another that is tied to the European debt crisis.

Eggertsson, a native of Iceland, comes to Brown with prior teaching experience at both Princeton and Yale and looks forward to doing research in a new setting. He’ll be teaching both undergraduate and graduate seminars on stabilization policy and said he hopes to challenge the typical undergraduate economics class model a bit. “I’ve found that the nature of the books undergraduate students read do not reflect as well as they should how things have been done in practice, both in the real world but also in graduate school, especially in regards to modeling and mathematical techniques. I want to see the extent to which I can challenge the students by moving them closer to how things are being done even if that does require using a lot of tools. I guess we will have to see how that works out.”

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