Athanasios Orphanides
Encyclopedia
Athanasios Orphanides is a Cypriot
economist who has been the Governor of the Central Bank of Cyprus
since 3 May 2007 (appointed for a 5 year term with option by the Cyprus president to renew) and a member of the Governing Council of the European Central Bank
since 1 January 2008.
Prior to his appointment as Governor, he served as Senior Adviser at the Board of Governors of the Federal Reserve System
in the USA, where he started his professional career as an economist in 1999 . While at the Federal Reserve he taught undergraduate and graduate courses in macroeconomics and monetary economics at Georgetown University
and Johns Hopkins University
.
He holds undergraduate degrees in mathematics and economics as well as Ph.D in economics from the Massachusetts Institute of Technology
.
, and in favour of non-activist policy rules drawing on Milton Friedman
and Knut Wicksell
. He has stressed that overemphasizing the output gap as reflected, for example, in the Taylor rule
or optimal control policy, is counterproductive for stabilizing the macroeconomy. He has also provided an explanation of the high inflation experience in the United States during the late 1960s and 1970s as resulting from policy focused too closely at stabilizing the real economy, by aiming to close the perceived output and unemployment gaps. According to this analysis, the high inflation resulted from the fact these gaps were badly mismeasured due to overoptimistic real time estimates of potential output and the natural rate of unemployment (Orphanides, 2003).
In related work, Orphanides and Simon van Norden, have explained that the unreliability of output gap measures in real time is of a more general nature than previously thought. They documented the unreliability of various statistical techniques for measuring the output gap
in real-time and also the lack of predictive power of real-time output gap
estimates for forecasting inflation, thus calling into question policy approaches that rely on the output for stabilization policy (Orphanides and Norden, 2002).
The role of imperfect knowledge and the formation of expectations in a learning environment has been a theme in the work by Orphanides and John C. Williams. They have argued that the central bank must ensure that inflation expectations must remain well-anchored, in line with the central bank’s price stability objective, in order to improve the stability of the macroeconomy. Their work documented the benefits associated with a central bank’s numerical price stability objective and the pitfalls of optimal control policy design (Orphanides and Williams, 2008).
Working with Volker Wieland and others, Orphanides also contributed to research on the conduct of monetary policy near to zero lower bound for nominal interest rates. This work was motivated by the Japanese experience with near-zero rates in the late 1990s but became of immediate policy relevance during the 2008 global financial crisis (Orphanides and Wieland, 2000).
Cyprus
Cyprus , officially the Republic of Cyprus , is a Eurasian island country, member of the European Union, in the Eastern Mediterranean, east of Greece, south of Turkey, west of Syria and north of Egypt. It is the third largest island in the Mediterranean Sea.The earliest known human activity on the...
economist who has been the Governor of the Central Bank of Cyprus
Central Bank of Cyprus
The Central Bank of Cyprus , is the central bank of the Republic of Cyprus, located in Nicosia. It was established in 1963. Its current governor is Mr. Athanasios Orphanides...
since 3 May 2007 (appointed for a 5 year term with option by the Cyprus president to renew) and a member of the Governing Council of the European Central Bank
European Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
since 1 January 2008.
Prior to his appointment as Governor, he served as Senior Adviser at the Board of Governors of the Federal Reserve System
Federal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
in the USA, where he started his professional career as an economist in 1999 . While at the Federal Reserve he taught undergraduate and graduate courses in macroeconomics and monetary economics at Georgetown University
Georgetown University
Georgetown University is a private, Jesuit, research university whose main campus is in the Georgetown neighborhood of Washington, D.C. Founded in 1789, it is the oldest Catholic university in the United States...
and Johns Hopkins University
Johns Hopkins University
The Johns Hopkins University, commonly referred to as Johns Hopkins, JHU, or simply Hopkins, is a private research university based in Baltimore, Maryland, United States...
.
He holds undergraduate degrees in mathematics and economics as well as Ph.D in economics from the Massachusetts Institute of Technology
Massachusetts Institute of Technology
The Massachusetts Institute of Technology is a private research university located in Cambridge, Massachusetts. MIT has five schools and one college, containing a total of 32 academic departments, with a strong emphasis on scientific and technological education and research.Founded in 1861 in...
.
Research contributions
A major theme of Orphanides’ research on monetary economics has been the evaluation and design of monetary policy in real time. He argued that since the data available to policy makers at the time policy decisions are made are imperfect and subject to substantial revisions, the historical analysis of monetary policy decisions as well as the evaluation of alternative policy strategies must be based on the information available in real time (Orphanides, 2001, Orphanides, 2003). His work has documented significant problems arising from policy decisions drawing on unobservable concepts such as the output gap. Orphanides has argued against output-gap-based policy rules, such as the Taylor ruleTaylor rule
In economics, a Taylor rule is a monetary-policy rule that stipulates how much the central bank should change the nominal interest rate in response to changes in inflation, output, or other economic conditions. In particular, the rule stipulates that for each one-percent increase in inflation, the...
, and in favour of non-activist policy rules drawing on Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
and Knut Wicksell
Knut Wicksell
Johan Gustaf Knut Wicksell was a leading Swedish economist of the Stockholm school. His economic contributions would influence both the Keynesian and Austrian schools of economic thought....
. He has stressed that overemphasizing the output gap as reflected, for example, in the Taylor rule
Taylor rule
In economics, a Taylor rule is a monetary-policy rule that stipulates how much the central bank should change the nominal interest rate in response to changes in inflation, output, or other economic conditions. In particular, the rule stipulates that for each one-percent increase in inflation, the...
or optimal control policy, is counterproductive for stabilizing the macroeconomy. He has also provided an explanation of the high inflation experience in the United States during the late 1960s and 1970s as resulting from policy focused too closely at stabilizing the real economy, by aiming to close the perceived output and unemployment gaps. According to this analysis, the high inflation resulted from the fact these gaps were badly mismeasured due to overoptimistic real time estimates of potential output and the natural rate of unemployment (Orphanides, 2003).
In related work, Orphanides and Simon van Norden, have explained that the unreliability of output gap measures in real time is of a more general nature than previously thought. They documented the unreliability of various statistical techniques for measuring the output gap
Output gap
The GDP gap or the output gap is the difference between potential GDP and actual GDP or actual output. The calculation for the output gap is Y*–Y where Y* is actual output and Y is potential output...
in real-time and also the lack of predictive power of real-time output gap
Output gap
The GDP gap or the output gap is the difference between potential GDP and actual GDP or actual output. The calculation for the output gap is Y*–Y where Y* is actual output and Y is potential output...
estimates for forecasting inflation, thus calling into question policy approaches that rely on the output for stabilization policy (Orphanides and Norden, 2002).
The role of imperfect knowledge and the formation of expectations in a learning environment has been a theme in the work by Orphanides and John C. Williams. They have argued that the central bank must ensure that inflation expectations must remain well-anchored, in line with the central bank’s price stability objective, in order to improve the stability of the macroeconomy. Their work documented the benefits associated with a central bank’s numerical price stability objective and the pitfalls of optimal control policy design (Orphanides and Williams, 2008).
Working with Volker Wieland and others, Orphanides also contributed to research on the conduct of monetary policy near to zero lower bound for nominal interest rates. This work was motivated by the Japanese experience with near-zero rates in the late 1990s but became of immediate policy relevance during the 2008 global financial crisis (Orphanides and Wieland, 2000).