An interview with Franco Modigliani

Franco Modigliani's contributions in economics and finance have transformed both fields. Although many other major contributions in those fields have come and gone, Modigliani's contributions seem to grow in importance with t ime. His famous 1944 article on liquidity preference has not only remained required reading for generations of Keynesian economists but has become par t of the vocabulary of all economists. The implications of the life-cycle h ypothesis of consumption and saving provided the primary motivation for the incorporation of finite lifetime models into macroeconomics and had a semi nal role in the growth in macroeconomics of the overlapping generations app roach to modeling of Allais, Samuelson, and Diamond. Modigliani and Miller' s work on the cost of capital transformed corporate finance and deeply infl uenced subsequent research on investment, capital asset pricing, and recent research on derivatives. Modigliani received the Nobel Memorial Prize for Economics in 1985. In macroeconomic policy, Modigliani has remained influential on two contine nts. In the United States, he played a central role in the creation of a th e Federal Reserve System's large-scale quarterly macroeconometric model, an d he frequently participated in the semiannual meetings of academic consult ants to the Board of Governors of the Federal Reserve System in Washington, D.C. His visibility in European policy matters is most evident in Italy, w here nearly everyone seems to know him as a celebrity, from his frequent ap pearances in the media. In the rest of Europe, his visibility has been enha nced by his publication, with a group of distinguished European and America n economists, of "An Economists' Manifesto on Unemployment in the European Union," which was signed by a number of famous economists and endorsed by s everal others. This interview was conducted in two parts on different dates in two differe nt locations, and later unified. The initial interview was conducted by Rob ert Solow at Modigliani's vacation home in Martha's Vineyard. Following the transcription of the tape from that interview, the rest of the interview w as conducted by William Barnett in Modigliani's apartment on the top floor of a high-rise building overlooking the (Charles River near Harvard Univers ity in Cambridge, Massachusetts. Those concluding parts of the interview in Cambridge continued for the two days of November 5-6, 1999 with breaks for lunch and for the excellent espresso coffee prepared by Modigliani in an e laborate machine that would be owned only by someone who takes fine coffee seriously. Although the impact that Modigliani has had on the economics and finance pr ofessions is clear to all members of those professions, only his students c an understand the inspiration that he has provided to them. However, that m ay have been adequately reflected by Robert Shiller at Yale University in c orrespondence regarding this interview, when he referred to Modigliani as: "my hero".