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How Bernanke’s Style Differs from Greenspan’s
Every Federal Reserve chairman has a different style
that affects how policy decisions are made at the Fed.
There has been much discussion of how the current
chairman of the Fed, Ben Bernanke, differs from Alan
Greenspan, who was the Chairman of the Federal
Reserve Board for 19 years from 1987 until 2006.
Alan Greenspan dominated the Fed like no other
prior Federal Reserve chairman. His background was
very different from that of Bernanke, who spent most
of his professional life in academia at Princeton
University. Greenspan, a disciple of Ayn Rand, is a
strong advocate for laissez-faire capitalism and
headed a very successful economic consulting firm,
Townsend-Greenspan.* Greenspan has never been
an economic theorist, but is rather famous for immers-
ing himself in the data—literally so, because he is
known to have done this in his bathtub at the begin-
ning of the day—and often focused on rather obscure
data series to come up with his forecasts. As a result,
Greenspan did not rely exclusively on the Federal
Reserve Board staff’s forecast in making his policy
decisions. A prominent example occurred during
1997, when the Board staff was forecasting a surge
in inflation, which would have required a tightening
of monetary policy. Yet Greenspan believed that infla-
tion would not rise and convinced the FOMC not to
tighten monetary policy. Greenspan proved to be
right and was dubbed the “maestro” by the media.
Bernanke, on the other hand, before going to
Washington as a governor of the Fed in 2002, and
then as the chairman of the Council of Economic
Advisors in 2005, and finally back to the Fed as
chairman in 2006, spent his entire career as a pro-
fessor, first at Stanford University’s Graduate School
of Business, and then in the Economics Department at
Princeton University, where he became chairman.
Because Bernanke did not make his name as an eco-
nomic forecaster, the Board staff’s forecast now plays
a much greater role in decision making at the
FOMC. In contrast to Greenspan, Bernanke’s back-
ground as a top academic economist has meant that
he focuses on analytics in making his decisions. The
result is a much greater use of model simulations in
guiding policy discussions.
The style of policy discussions has also changed
with the new chairman. Greenspan exercised exten-
sive control of the discussion at the FOMC. During
the Greenspan era, the discussion was formal, with
each participant speaking after being put on a list by
the secretary of the FOMC. Under Bernanke, there is
more give and take. Bernanke has encouraged
so-called two-handed interventions. When a partici-
pant wants to go out of turn to ask a question or
make a point about something that one of the other
participants has just said, he or she raises two hands
and is then acknowledged by Chairman Bernanke
and called on to speak.
The order of the discussion at the FOMC has also
changed in a very subtle, but extremely important
way. Under Greenspan, after the other FOMC partici-
pants had expressed their views on the economy,
Greenspan would present his views on the state of the
economy and then would make a recommendation for
what monetary policy action should be taken. This
required that the other participants would then just
agree or disagree with the chairman’s recommenda-
tion in the following round of discussion about mone-
tary policy. In contrast, Bernanke usually does not
make a recommendation for monetary policy immedi-
ately after other FOMC participants have expressed
their views on the economy. Instead, he summarizes
what he has heard from the other participants, makes
some comments of his own, and then waits until after
he has heard the views of all the other participants
about monetary policy before making his policy rec-
ommendation. The process under Greenspan meant
that the chairman was pretty much making the deci-
sion about policy, while Bernanke’s procedure is more
democratic and enables participants to have greater
influence over the chairman’s vote.
Another big difference in style is in terms of
transparency. Greenspan was famous for being
obscure, and even quipped at a Congressional
hearing, “I guess I should warn you, if I turn out to
*For biographical information on Alan Greenspan, see his autobiog-
raphy,
The Age of Turbulence: Adventures in a New World (New
York: Penguin Press, 2007).
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Part 4 Central Banking and the Conduct of Monetary Policy
How Independent Is the Fed?
When we look in the next chapter at how the Federal Reserve conducts monetary
policy, we will want to know why it decides to take certain policy actions but not
others. To understand its actions, we must understand the incentives that motivate
the Fed’s behavior. How free is the Fed from presidential and congressional pres-
sures? Do economic, bureaucratic, or political considerations guide it? Is the Fed truly
independent of outside pressures?
Stanley Fischer, who was a professor at MIT and is now Governor of the Bank
of Israel, has defined two different types of independence of central banks:
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