Economics students take the challenge
UB team makes impressive showing "playing Greenspan" for the day in NY Fed contest

By SUE WUETCHER
Reporter Editor

The six economics students weren't about to let a little thing like plane fare keep them from "playing Greenspan" for the day.

	UB economics students (from left) Elizabeth Dollinger, Tom Hitchcock, Colleen Murphy, Mike Klingensmith and Joseph Beck wait to be "challenged" by the NY Fed judges.
	Photo: Nancy J. Parisi

So thanks to some high-tech ingenuity, the students last week joined teams from New York University, Columbia University and Pace University as participants in the annual "Fed Challenge," sponsored by the Federal Reserve Bank of New York.

While the UB team didn't win the competition—that achievement went to the team from NYU—team members did impress the judges with their presentation, according to Isaac Ehrlich, Leading Professor and chair of the Department of Economics, citing a confidential source at the NY Fed. Moreover, Richard Deitz, an economist with the NY Fed's Buffalo branch who helped coach the UB team, "also heard good words about our team" from NY sources, Ehrlich said. A UB team will be invited to participate in the challenge again next year, he added, noting, "We are already gung-ho about preparing a winning team for next year. Three of the students participating in this year's team are continuing their education with us—they are enrolled in our MA program in applied economics—and thus will be able to help coach next year's team."

The challenge offers aspiring economists the opportunity to assume the role of Alan Greenspan, chairman of the Federal Reserve System, and determine the Fed's next move on interest rates, based on the relevant macro-economic environment, Ehrlich said. In fact, each university's presentation mimicked the Fed's regular meetings, with students recommending that interest rates either remain stable, go up or go down, depending on a number of economic indicators, among them unemployment claims, increases in consumer and government spending, industrial production, saving rates and retail sales.

Ehrlich pointed out that while the Fed Challenge has been going on for years at the high school level, this was the first time it had involved college students. The NY Fed wanted to include a team from a SUNY institution in the challenge, he said, and he was asked to organize a team of undergraduate economics students to participate.

The greatest "challenge" was not in fielding a good team, he said, but in finding a way to get the team before the judges. The NY Fed did not have the money to fly the students to New York City, and an attempt to hook up with New York via videoconferencing from the Fed's downtown Buffalo branch failed, he said.

Arrangements then were made to beam the students to New York via videoconferencing equipment located in the Furnas Room in Capen Hall.

The students—Colleen Murphy, Joseph Beck, Michael Klingensmith, Elizabeth Dollinger, Thomas Hitchcock and Jessica Loh—were calm and professional during the presentation on March 4, during which they recommended that the Fed keep interest rates stable, "with a slight bias toward tightening."

Hitchcock told the judges—Deborah Perlmutter, a senior vice president at the NY Fed, and Richard Peach, vice president of the bank's research group—that based on the available data and "our economic intuition," the team had come to the consensus that "interest rates should remain unchanged. We feel that the economy is bottoming out and we expect economic conditions to improve" as the effect of the Fed's record-setting 11 interest-rate cuts in 2001 continues to filter into the economy.

After a 15-minute presentation in which the students offered various economic indicators to support their opinion, they fielded questions from the judges.

The students said they had been well-coached by economics department faculty members Juan Mendoza and Chetan Subramanian, both assistant professors, as well as Deitz and Ehrlich, and were prepared for the judges' questions. In particular, Murphy noted, they had anticipated a question about how the events of Sept. 11 affected the Federal Reserve.

In response to that question, Dollinger told the judges that the team felt that consumer confidence was the main issue for the Fed following Sept. 11, noting that consumer spending makes up two-thirds of the GDP (Gross Domestic Product) in the U.S. economy, which is greatly affected by consumer confidence.

Klingensmith added that when the Fed lowered interest rates again after the terrorist attacks, retail sales picked up in the fourth quarter. "The Fed did the right thing in boosting consumer confidence," he said.