Misplaced childhood: When recession children grow up as central bankers

We examine how much an early – i.e., childhood – experience of recession influences the behavior of central bankers. We develop a model of decision making by a committee whose leader and members exhibit recession aversion due to their personal experience. The model reveals that recession aversion could lead to a reluctance of the policymaker to increase policy rates. In a panel multinomial logit model for nine major central banks analyzed over the period 1999–2015, we find that growing-up in a recession influences monetary policy-making. Central bankers’ early personal experiences of recessions shape their policy reactions, increasing the willingness to cut policy rates, with policy-relevant magnitudes. The results are robust to alternative behavioral hypotheses, accounting for a number of control variables or sample variation.