Mark Calabaria has a superb post. He points how Federal Reserve staff comes mainly from economics programs of selected universities in US:
Should this matter, at least in terms of monetary policy? I believe it should. We are a big country and, despite a focus on national aggregates, different parts of the country experience different economic conditions. California isn’t Texas; nor is it Ohio or New York. To some extent these regional differences are why we have the convoluted regional structure of the FOMC. Different voices can bring their experiences and local knowledge to bear in a manner that should result in a monetary policy that weighs the conditions of both New York and Ohio (as well as the rest of the country). Researchers have found that local economic conditions do indeed influence voting behavior on the FOMC. The finding holds not just for the regional bank Presidents, but also for Fed governors.
Of course geography is only one element. Having Fed leadership from different segments of our society, as well as different disciplines, encourages multiple approaches to problem-solving. While I am an economist and see a lot of value in economics, I’d be the first to say economics doesn’t have all the answers. Similarly, bankers can have important insights into the functioning of the economy, but so can manufacturers, retailers and farmers.
A greater variety of backgrounds could also improve Fed communications. Spending a lot of time around economists, I think it is fair to say we often speak a different language, sometimes foreign and strange to outsiders. A Fed board where deliberations occur across disciplines could improve the explanations of those deliberations to the broader public. I know I’ve often learned a considerable amount of economics in the process of trying to explain something to non-economists.
To some extent the heavy concentration of appointments to the Board from NY, Boston and DC reflects the revolving door between the Fed, the financial industry and the executive branch (particularly the Treasury and the Council of Economic Advisors). So the lack of diverse perspectives is likely even worse than it seems. Not only do Fed appointments reflect biases favoring New York, but predominately biases favoring New York’s financial industry. Similarly, for Washington, appointments reflect biases favoring the Treasury department or the status quo thinking in monetary economics.
In developing countries like India the revolving door is between central bank, finance ministry and IMF/US university connections. The more the number of years elsewhere (in US is likely to work in you favor. In US, people are now beginning to see this nexus as a problem. But here these things are celebrated. Anyone well versed with things locally is hardly praised by the finocracy whose decisions matters greatly.
In India, we hardly even do enough to appoint economics students leave other fields. The central bank could easily develop its regional offices and pick local knowledge from these centres. But there has been no interest at all. It will also provide employment to so many researchers around the country who struggle to get decent jobs. These regional offices only come to limelight when the central bank board meetings are held there which is so artificial really. Why fly the team to a regional office just for a meeting and waste taxpayer money. One could just attend meeting in Mumbai or Delhi itself.
Where these regional offices could make a difference is to have a research network where things get collected at Mumbai and Delhi. But then who cares for all such knowledge. It is all about global in these matters of money. It is not even global but just about US and social network..