Research Incentives: Milton Friedman on the Fed
Does money influence research outcomes? We’re used to hearing this question when it comes to pharmaceutical research and the same question is surely relevant to research in monetary economics. Central banks like the Fed, the ECB, and the BoE do a lot of hiring, sponsor a lot of conferences, pay a lot of honoraria. Might people be reluctant to bluntly criticize the hand that feeds them?
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…[T]he Federal Reserve System…as I believe it, hires directly roughly half of all economists specializing in the field of money…I have no doubt that this is a major reason why the Federal Reserve, despite such a poor record of performance, has such a high public standing.
Fed-sponsored research generally adheres to a high level of scholarship, but it does not follow that institutional bias is absent or that the appropriate level of scrutiny is zero.