THE IMPACT OF A NEW FEDERAL RESERVE CHAIRMAN

This paper treats appointing a Federal Reserve Chairman as a portfolio investment made by the United States President. It models Ronald Reagan's 1987 choice between Paul Volcker and other candidates as a trade-off between a potentially unfavorable short-term market response to replacing Volcker and various long-term political benefits from installing Reagan's own man. The paper discusses possible effects of Alan Greenspan's chairmanship on the trajectory of future monetary policy, on the Fed's preferences for financial reform, and on the Fed's corporate culture.