Learning Curve Foreseen for New Bank Governor

Professor Amir Yaron, the nominee for the next Governor of the Bank of Israel, has impressive credentials; but the question has been raised whether they are the right kind of credentials that will provide him with the special expertise necessary to oversee Israel’s monetary policymaking.

“His academic background is not in monetary policy or central banks; it is in finance. Prime Minister Benjamin Netanyahu and Minister of Finance Moshe Kahlon are therefore taking something of a gamble concerning his ability to cope with potential crises. This immediately invites a comparison with Stanley Fischer, under whose leadership the Bank of Israel very successfully withstood the 2008 crisis,” IBI Investments chief economist Rafael Gozlan was quoted as saying in Globes on Thursday.

Yaron comes to the post from his professorship of banking and finance at the Wharton School of the University of Pennsylvania. He specializes in asset pricing, macro-finance and applied time series econometrics. He has his Ph.D. from the University of Chicago and B.A. and M.A. degrees in Economics from Tel Aviv University.

As such, it would seem that he—and the Israeli economy—will have to undergo a learning curve, perhaps more so than would have been the case of any new senior appointee.

“Yaron is an unknown on the subject of monetary policy,” concurs Leader Capital Markets macroeconomist Yonatan Katz. “He will have to learn, and will probably wait at the first meeting and not make an immediate change. The interest rate is low because there is no inflation, and if he puts the emphasis on non-financial activity and the need for a balance in financial assets, his inclination will be to raise the interest rate in order to restore it to a ‘normal’ level.”

Gozlan went so far as to question the motivation for selecting someone who was not at first glance a natural fit for the job.

“The appointment of Yaron can only raise questions about the considerations that guided the prime minister and the minister of finance. It is no secret that the chemistry between Governor of the BoI Karnit Flug and the minister of finance was not good, given the Bank’s criticism on a number of matters, especially taxation, real estate (the Buyer Fixed Price Plan), and bank reform.

“If the main consideration was the appointment of a ‘comfortable’ governor, meaning someone who will not frequently criticize the government when necessary, this will become clear before long. If this is the case, the market will accordingly charge a higher premium, because it will indicate a decline in the Bank of Israel’s independence,” he asserted.

Gozlan also questioned Yaron’s familiarity with the Israeli economy, suggesting that it “is probably not extensive, given that reports say that he has been living in the U.S. for the past 20 years.”

Yaron’s residence abroad notwithstanding, his bio does indicate that he’s been in touch with the Israeli situation as a Board Member of the Dovrat Economic Policy Center at the Interdisciplinary Center in Herzliya.

He also served as a captain in the IDF where he was a financial advisor to the Chief of Staff.

In any case, Yaron’s appointment awaits approval by the Committee for Senior Public Appointments and the cabinet.