Alumni Q&A: Karnit Flug

October 11, 2021

('86PhD, Economics)

Karnit Flug was appointed Governor of the Bank of Israel in 2013. She credits her Columbia education with providing a springboard for her career in economic policy.

After living and studying in Israel for many years, what brought you to Columbia University for a Ph.D.?

After finishing my undergraduate and master’s at the Hebrew University of Jerusalem, I wanted to broaden my exposure to other excellent academic institutions. Columbia University presented me with a winning combination: academic excellence, particularly in the fields I was interested in (labor markets and international trade); living in New York City; and a fellowship that made all of this possible.

How would you describe your experience at Columbia and in New York City in the early to mid-1980s?

Student life was very exciting, with students from all over the world forming close friendships, and studying was intense and stimulating. New York City was both exciting but also a bit overwhelming and even scary. There were streets and parks just near the University you couldn’t get close too. It was nice to come back later (in the 1990s) to this area and witness the significant improvement, which made you feel safe to wander around the University in all directions.

Your dissertation was titled “Government Policies in a General Equilibrium Model of International Trade and Human Capital.” Can you provide a synopsis?

My dissertation dealt with the effects of government policies on the pattern of international trade. In particular, I developed a theoretical model to examine the effects of policies such as minimum wage and subsidizing education on the formation of human capital, and in turn on the type of products a small open economy will specialize in. In the empirical part of my dissertation, I tested implications of the theoretical model using cross-country data. I estimated the effect of minimum wages and government spending on education, on the skill composition of the labor force in each country, and on the skilled/unskilled labor ratio embodied in exports and imports of each country.

Were there any Columbia professors who were particularly influential for you as a young scholar?

In both fields—international trade and labor economics—the professors who were most influential in my studies were Jacob Mincer, Ronald Findlay, and Jagdish Bhagwati.

When you first joined the Bank of Israel in 1988, you worked in the Research Department, publishing papers on the topics of macroeconomics, the labor market, and social policies. In 2001, you were appointed director of the department, a position you held for ten years. Would you say that a passion for economics research, both theoretical and empirical, has been a continuous thread throughout your education and professional life?

My interest in economic policy started with the type of questions I chose to explore in my dissertation, continued with the choice of my first job as an economist with the IMF, and was also reflected in my professional life at the Bank of Israel. My work was always focused on economic policy questions, earlier on as a researcher and now as a policy maker. The research background provided me with the analytical tools to help understand the possible channels through which policies affect outcomes.

The President of Israel appointed you Governor of the Bank of Israel in November 2013. What have been your highest priorities since assuming the role?

Since the global financial crisis in 2008, the role of the central bank of a small open economy like Israel has become very challenging because of the low global growth (and consequently low global demand for the products of the small economy) and an extremely accommodating monetary policy applied by all major central banks. Thus, the main priority has been to provide the stable conditions for the economy necessary for growth and employment within the stormy global environment. Another role I carry as Governor of the Bank of Israel is to provide economic policy advice to the government. In such a capacity, my main priority has been to focus on policies that could foster sustainable inclusive growth. This means policies that would improve the skills and employability of individuals from groups in society that tend to have a low participation rate and low earning capacity.

What do you enjoy doing in your free time?

I don’t have much of it, but when I do I enjoy reading, walking, and cooking.

Do your travels ever bring you back to New York or the United States?

Yes, I do get to NYC once in a while, and I enjoy that very much. I particularly enjoy walking around Columbia and seeing what has changed (the area has become much cleaner and safer) and also seeing some of the things that have remained the same.

Is there anything else you would like to add?

This is an opportunity for me to say a big thankyou to Columbia University for providing me with the foundations on which my professional career has been built.

— Interview conducted by Andrew Ng