Berkeley economist wins prestigious John Bates Clark Medal

May 2, 2019
By: Gretchen Kell
Macroeconomist Emi Nakamura
Macroeconomist Emi Nakamura is the fourth woman to receive the John Bates Clark Medal since it began in 1947. (Photo by Genevieve Shiffrar)

Emi Nakamura, a UC Berkeley economist, is this year’s recipient of the prestigious John Bates Clark Medal , widely viewed as second only in prestige to the Nobel Prize in Economic Sciences. The annual award, announced by the American Economic Association, is given to an American economist under age 40 who is judged to have made the most significant contribution to economic thought and knowledge.

She is the fourth woman to win the medal since its inception in 1947.

Learning she’d won the award “was an amazing moment. Quite overwhelming,” says Nakamura, 38, a Chancellor’s Professor of Economics at Berkeley who joined the faculty last summer.

At a celebration for her this week, Alan Auerbach, chair of the Department of Economics, reminded colleagues of what he’d predicted for her when she first arrived on campus.

“I told her Berkeley would be a very productive place for her, and look what’s happened,” he quipped. “We timed it very well!”

In addition to receiving the John Bates Clark Medal, Nakamura was elected last month to the American Academy of Arts and Sciences and was chosen last December by The Economist as one of the decade’s eight best young economists.

New methods for big questions

Nakamura says her work seeks to expand the types of data and empirical methods used in macroeconomics to answer big questions, like what causes recessions, and to measure the effects of monetary and fiscal policy on the economy.

“For obvious reasons, we don’t get to run actual experiments in macroeconomics, by, say, raising and lowering interest rates to measure their effects on the economy,” she explains. “But it is increasingly possible to study the microdata that underlie widely-used macroeconomic statistics, such as inflation and the gross domestic product, which opens up the possibility of using methods that couldn’t be used in macroeconomics before.”

Auerbach says Nakamura “uses very detailed data sets, looking beneath the hood a lot more, looking under a microscope at a low level of aggregations, at individual firms and individual products. And that requires a lot more work than just taking data from the Bureau of Economic Analysis and analyzing it.”

An important idea in economics, says Nakamura, is to use “natural experiments” to study the effects of economic policy. One of her most influential papers shows the effects of fiscal stimulus using data on U.S. military build-ups and drawdowns in different states. She found that an extra dollar of spending increases output by $1.50. In its announcement, the American Economic Association noted that this paper “provides an excellent example of work that combines non-structural empirical work with careful, model-based analysis.”

Economics professor Benjamin Hermalin, vice provost for the faculty, says “Emi’s work on price-setting has had a major effect on our understanding and ongoing study of why prices are inflexible in the short run, and the consequences thereof for the economy. Her work on monetary policy is of great importance to thinking about the role of central banks in the economy. And her work on fiscal policy has provided some of the most convincing analyses to date on the effects of fiscal policy on the economy.”

Additionally, says Hermalin, Nakamura’s prize “definitely spills over to the economics department and will make Berkeley more attractive to potential graduate students and other economists we wish to recruit.”

She’s also bringing her new approach to macroeconomic research into the classroom. Currently, Nakamura is teaching a graduate course in empirical macroeconomic methods and running a lunchtime seminar where Ph.D. students can present their dissertation research in an informal setting. Next fall, she’ll be teaching a large undergraduate course for economics majors about the theory and the empirics of macroeconomic policy.

A leader in an increasingly data-intensive field

Much of Nakamura’s research is on monetary policy’s effect on the economy. Her most highly-cited work studies price rigidity, the fact that prices often remain unchanged for long periods of time, as opposed to responding to macroeconomic developments. “Most macroeconomists think this is at the core of why monetary policy affects the economy,” Nakamura says.

Recently, she constructed new data on price behavior going back to the double-digit inflation era of the 1970s to study how price adjustment differed in that era. She found that prices became substantially more responsive as inflation rose.

Another strand of Nakamura’s work on monetary policy makes use of minute-by-minute data to assess the effects of monetary policy.

“Zooming in on what happens precisely at the time of the Fed announcement allows us to isolate the effects of the Fed announcement itself from the economic forces that caused the Fed to lower interest rates,” she says. “Isolating the effect of monetary policy from its cause is the central empirical challenge facing researchers trying to measure these effects.”

She found that the Federal Reserve affects the economy not only through the conventional channel of making borrowing more expensive, but through the unconventional channel of making people more or less optimistic about the economic environment.

Nakamura’s co-author on much of her work is Jón Steinsson, also a Chancellor’s Professor of Economics at Berkeley. At 42, Steinsson was not eligible for the John Bates Clark Medal. He and Nakamura are married and have two small children.

“Jón and I are both celebrating this award,” says Nakamura, “which is clearly an award for our joint research.”

With the field of economics becoming more data-intensive, she says, “I see this award not only as a recognition of the specific work we have done, but also as a recognition of the growth of applied research in macroeconomics, using new sources of data and empirical methods and combining them with macroeconomic models.”

Nakamura is the third current faculty member in the economics department to win the John Bates Clark Medal. David Card won in 1995 and Emmanuel Saez in 2009.