Summer 1996
by Jeff Fuhrer

The federal reserve system is responsible for achieving healthy economic growth and low inflation. This clarity of purpose helps the Fed sort the economic wheat from the chaff and seek practical knowledge useful to monetary policymakers. Could a policy focus help students to learn the sometimes confusing art of economics?

My initial response to this question was no. Monetary policymaking requires input from experienced, highly trained experts who can properly interpret the signals imbedded in the reams of economic data released each week and make the appropriate policy decision -- tighten, ease, or leave it alone. Monetary policy is just too difficult to be used as an organizing principle for teaching macroeconomics.

Five high school seniors recently proved me wrong. The five were the Hyde Park High School team in the Fed Challenge, the Fed's competition in which high school teams are asked to formulate monetary policy. I was the team's coach.

The students had had little exposure to macroeconomics, monetary policy, or the interpretation of economic statistics. They were expected to learn quickly, and make a coherent and cogent monetary policy recommendation to a panel of career economists and policymakers. I visited Hyde Park High several times to teach the kids the basic tools of the monetary policy trade: the Phillips curve (the inflation/ unemployment trade-off), Okun's Law (the connection between real growth and the unemployment rate), and the monetary transmission channel. Could they, I wondered, digest the material and make a professional presentation in such a short time?

As it turned out, the kids were dynamite. They attacked the subject matter with enviable energy and focus. They gave each other pointed, honest, even brutal feedback at trial-run presentations, and honed their arguments, materials, and question-answering skills. On the day of the regional competition, the team looked confident and professional, dressed in crisp navy blazers and sparkling-white shirts and blouses. Using carefully crafted tables and charts, each member contributed an element of the presentation -- overview, summary of outlook, risks to the outlook, implications for policy goals, and policy recommendation. After each of the judges' questions, the team huddled, College Bowl-style, and then offered accurate, straightforward answers.

Hyde Park won the competition, but all teams performed surprisingly well. In fact, these students displayed greater mastery of economics than most top-level undergraduates I have taught. Perhaps they did so well because of the competition, or because the winners won a trip to D.C. But most important, I think, was the clear purpose they had for learning economic principles. The context of a policy recommendation gave the abstract and academic discipline of economics a concrete and practical focus.

This may not be the best or the only way to teach economics. But I am convinced that focusing macroeconomic analysis through a policymaking lens sharpens the understanding and helps prepare students to use their education in practical life.

Jeff Fuhrer,
Vice-president and economist at the Boston Fed