On May 31, a towering figure in macroeconomics, Stanley Fischer, died at his home in Massachusetts in the U.S. at the age of 81. A few colleagues who knew I had studied under Fischer passed on the news. It was difficult for me to process the grief, as memories of nearly two decades of learning from him, knowing him, and interacting with him came flooding back.
I wondered how Fischer would summarize his legendary life. Perhaps, in his mind, the most meaningful aspect was his spirit of engaging with the world and serving it by integrating Keynesian theory with practice.
Fischer was a great synthesizer of Keynesianism, a major founder of New Keynesian economics, and the economist most like Keynes.
Academically, he helped formalize wage rigidity — a situation where wages do not easily go up or down when economic conditions change — bridging the Chicago School’s theory of rational expectations with the Keynesian belief in the effectiveness of monetary policy.
Editor’s note: The Chicago School’s theory of rational expectations holds that people forecast future variables — like inflation or interest rates — using all available information and economic reasoning, not just past trends. This challenges older Keynesian views, which assumed people had adaptive expectations and could be surprised by policy changes.
While Keynesians argue that monetary policy can stimulate the economy in the short term, rational expectations theory suggests such effects may be limited, as people adjust their behavior in anticipation, offsetting the policy’s intended impact.
On the policy front, he actively engaged with the world, serving as first deputy managing director of the International Monetary Fund (IMF), chief economist at the World Bank, governor of the Bank of Israel (BOI), and vice chair of the Federal Reserve. Everywhere he went, he inspired many followers due to his scholarship, insight and character.
In teaching, he served in the Department of Economics at the Massachusetts Institute of Technology (MIT) for around two decades. His teaching influenced generations of scholars, and his students — an assembly of distinguished talent — regarded him as a master of international economics and finance.
Many scholars believe Fischer led the global interest rate cuts in 2008 and was among the first to raise rates after the financial crisis to prevent the economy from overheating. In his early days at the BOI, many senior staff felt his monetary policy decisions were too aggressive and often surprised the markets. Particularly in mid-2007, he abruptly raised rates after months of cuts, and then significantly cut them again in early 2008.
When I discussed that with him, he didn’t see it as a misjudgment, but as exceptional measures for exceptional times. He said central banks must be “ahead of the curve,” given the lag in monetary policy effects. When circumstances change, policy must adjust accordingly — and swiftly, he said.
If Lawrence Summers was sharp, Paul Krugman was provocative, and Ben Bernanke was refined, then their teacher, Fischer, was profound. He had rich experience and was a pathbreaker who could see into the core of issues, explain deep concepts in an accessible way, and grasp the core with precision. These traits, combined with his signature calmness, especially in the face of crisis and pressure, made him an invaluable asset to the Fed.
Ahead of Christmas in 2014, I had a long conversation with Fischer in his office, shortly after he became a vice chair of the Fed. He showed me a bust of Keynes, which was probably a gift from BOI colleagues when he left. This bust accompanied him to the Fed, a key global economic decision-making institution. Like the economist represented by the bust, his academic convictions influenced several generations of global policymakers.
Not only did Fischer, like Keynes, achieve excellence in both academia and policy, but his name also became closely tied to the rebirth of Keynesianism. In the 1970s, as the U.S. economy entered an era of stagflation, skepticism about Keynesian government intervention peaked. At that time, Fischer was teaching at the University of Chicago, a stronghold of anti-Keynesianism.
In 1973, he returned to MIT and in 1977 published the paper Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule, which demonstrated that with nominal wage rigidity, even anticipated monetary policy could affect output, laying the theoretical foundation for New Keynesian economics.
During his tenure at MIT, Fischer co-authored two classic textbooks. One, written for undergraduates — “Macroeconomics” (co-authored with Rudiger Dornbusch and Richard Startz) — systematically explained theories of long-term macroeconomic growth and short-term fluctuations. Since it was first published in 1978, the book has reached its 13th edition, profoundly shaping generations’ understanding of the field.
The other, “Lectures on Macroeconomics,” written for postgraduate students, was based on MIT’s macroeconomics lectures for doctorate candidates that Fischer delivered with his student Olivier Blanchard in the 1980s. It was published in 1989.
The book emphasized that short-run price stickiness leads to the non-neutrality of monetary policy — an idea that changing interest rates or the money supply can actually affect things like jobs, wages and economic growth, not just prices — becoming a representative work of New Keynesian economics.
That book, Macroeconomics, influenced me personally, prompting me to switch from mechanical engineering to economics after stumbling upon a photocopied version of the undergraduate textbook on the streets of Shanghai in 1999.
Few people could untangle complex models so clearly, and even fewer could link textbook economics with real-world policy so closely. Fischer was acutely aware of models’ limitations. Such an awareness was reflected when he advised my dissertation. He asked me to simplify the dynamic stochastic general equilibrium model, a tool economists use to simulate how the economy might respond to things like interest rate changes or shocks, based on how firms and households are expected to behave.
Beyond playing a pivotal role in shaping the foundations of New Keynesianism, Fischer was a committed globalist. Born and raised in Africa, he remained deeply concerned about the achievements of developing countries, saying he was deeply attracted to development issues.
During his time as first deputy managing director at the IMF in the 1990s, he led multiple financial crisis rescue efforts in developing nations. Among them, he often mentioned the South Korean people’s voluntary donation of gold during the Asian financial crisis to replenish national reserves — a gesture that deeply moved him.
In September 2018, Fischer was invited to visit China for a development forum, where he was greeted by some of China’s senior officials. During the forum, I organized a small dinner gathering with Chinese economists. Near the end of the gathering, he recalled his first visit to China in the 1980s, when he was chief economist at the World Bank and had the chance to visit China’s rural areas for a World Bank project. He said it was hard to imagine how China had transformed so dramatically in just 30 years.
Fischer always expressed concern over rising anti-globalization trends and hoped for lasting peace between China and the U.S., aiming to avoid the “Thucydides Trap,” an idea that when a rising power threatens to overtake an existing dominant power, it often leads to tension and even war. Throughout his life, he lived out the ideals and responsibilities of a global citizen, weaving globalism into both his policy work and academic vision.
Compared with his achievements in academia and policy, Fischer’s personal warmth shone even brighter. In every role he held, he earned unanimous respect, and everyone who met him was touched.
I met him in the summer of 2007, when, with the recommendation of my Princeton adviser, professor Alan Blinder, I had the fortune to visit the BOI. Fischer happily agreed to supervise my doctoral dissertation. We met weekly for an hour to discuss my research. He especially emphasized a comprehensive review and understanding of existing literature. I once wrote in my paper: To the best of my knowledge, this is the first paper that treats the inflation targeting regime not as a binary variable, but as a continuous one in terms of transparency and central bank independence. He replied, “Are you sure?” After I confirmed, he marked in my paper, “Are you absolutely sure?” This early encounter left a deep impression of his academic rigor.
He was not only strict with students but even stricter with himself. Every time I visited his office, it was spotless and meticulously organized. After I joined the IMF in 2008, we often met during the IMF spring and annual meetings.
At the time, he was BOI governor, but traveled without much of an entourage. Once, I gave him a ride to Reagan National Airport. I had parked at a nearby building, which was a 10-minute walk away from the airport. He insisted on carrying his own luggage and even “lectured” me about self-reliance. In the end, the 70-year-old professor pulled his suitcase himself while I walked beside him empty-handed.
Our final meeting was in December 2019, when he came to speak at the annual conference at my organization. He had prepared thoroughly. After giving one talk, he was invited to speak again at a higher-level agency the next day. Realizing that some attendees would overlap, the nearly 80-year-old professor stayed up overnight to write a completely new speech rather than repeat the previous one. Several of his old acquaintances at the event weren’t surprised and said, “That’s Stan.”
What I regret most is that I had to leave early for another meeting and couldn’t accompany him to the airport. He later called to ask, “Why did you leave early?” I had thought — now that he was no longer in public office — there would be many more chances to see him in China. There would always be a next time. But soon after, Covid struck.
In August 2020, I suddenly received several text messages from him, saying that his wife had passed away. I called immediately to offer my condolences, but I didn’t yet realize that at the time, his own health was already deteriorating.
That meeting, where I didn’t get to properly say goodbye, turned out to be our last.
Miao Yanliang is a managing director and chief strategist at China International Capital Corp. Ltd. He formerly served as chief economist at the State Administration of Foreign Exchange. He holds a master’s degree in economics from Fudan University and a Ph.D. from Princeton University.
Contact translator Qing Na (qingna@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)
