Seeking Clarity on the Stock Market, National Media Turn to Wellesley Economics Professors

March 11, 2016
A bandaid holds together a broken piggybank, coins lay around it

The stock market can be mysterious and confusing, but what is crystal clear is its impact on the country's economic landscape. Amid concerns over a fluctuating stock market, major media outlets recently sought commentary from Wellesley economics professors on topics including federal monetary policy and how the markets will affect individual’s retirement plans.

Dan Sichel, professor of economics, spoke to CNN Money and the Boston Globe. Sichel, who served as a senior staffer at the Federal Reserve until 2011, was tapped by CNN Money to weigh in on central banks' increasing use of negative interest rates, a risky monetary policy that means these banks actually charge financial institutions to keep deposits—intended to stimulate economic growth.

Sichel was asked to comment on whether the U.S. would realistically take such an extreme measure. "It is feasible for the U.S. to do it, but the hurdle is really high," he said. "If two years ago you asked me or anybody else with connections to the Fed about the possibility of negative rates, they would have said no way, never going to happen. But given the experience of other central banks, it can be done."

The Boston Globe queried Sichel on what the move toward negative interests means for the U.S. "It just shows how powerful and damaging [the financial] crisis of [2008] was," he said. "There were extraordinary and powerful policy steps taken. But it has taken the [U.S.] economy a long time to shake it off and it will take economies in other parts of the world even longer."

For Sichel, his years at the Federal Reserve give him a uniquely informed perspective he can share with the media, but he also brings his past experience into the classroom. "I really like to talk in my classes about my experiences in the Washington policy world," he said in an email. "I think it makes those discussions seem more real, and it's a useful way to illustrate the challenges of policy and to highlight that many—though not all—policymakers in Washington are talented and work very hard to figure out the best path forward. At the same time, they have really difficult choices to make."

The real-life repercussions of policy decisions are also never far from sight in Sichel’s classes. "When I talk to my students about U.S. economic policy, I emphasize both the importance and the challenges of economic policy making. Fiscal and monetary policy decisions that get made affect people's lives all over the world. Good policy choices can be incredibly beneficial, while poor choices can do damage that can last for a long time. At the same time, policy decisions are a lot more complicated and nuanced than just adjusting the policy variables that appear in macro textbooks."

Courtney Coile, professor of economics and Director of the Knapp Social Science Center, talked to Bloomberg Business about Why a Falling Stock Market Won't Postpone Retirements. In talking about the effect of the past 15 years on teaching investors how to manage volatility, Coile explained, "We've had these big boom-bust cycles. Investors may have gotten used to the idea that you do see big fluctuations—in both directions."

Bloomberg also cited research Coile previously published with Phillip Levine, Katharine Coman and A. Barton Hepburn Professor of Economics, through the National Bureau of Economic Research entitled "Recessions and Retirement: How Stock markets and Labor Market Fluctuations Affect Older Workers."

"Whenever the stock market drops by a lot, you see stories in the media suggesting that people will need to delay retirement," Coile said in an email. "[Phil Levine] and I have studied this and we find that relatively few people change their retirement behavior in response to market fluctuations. One reason for this may be that most people do not have large amounts of retirement savings. Also, the market often comes back up as quickly as it goes down, so people who simply ride out the storm may not end up much worse off."

-Helena McGonagle '16 contributed to this story.