A University of Minnesota economist known for his work analyzing real-world financial problems has been named president of the Federal Reserve Bank of Minneapolis.

Narayana Kocherlakota, 45, a longtime consultant to the Minneapolis Fed who entered Princeton University at age 15, will succeed Gary Stern, who announced his retirement in April after leading the Minneapolis bank for 24 years.

The appointment of an economist and academic is in keeping with the Minneapolis Fed's focus on research and economic theory; other Fed regions are run by executives or lifetime civil servants.

Kocherlakota received a doctorate in economics from the University of Chicago in 1987 on the topic of pricing financial assets, incorporating new kinds of consumer preferences and analyzing how risky payoffs influence attitudes. He joined the economics faculty at the University of Minnesota in 1998, left for three years to teach at Stanford, and then returned to Minnesota in 2005, becoming Carlson Chair in economics.

"For an economist who has spent his career working on issues related to macroeconomics, monetary policy and finance, there can hardly be a better job than president of a Federal Reserve Bank," Kocherlakota said. He declined to give interviews Wednesday.

As chairman of the University of Minnesota's economics department, he led a recruiting effort that increased its number of professors to 25 from 15. During the same period, the department's national ranking in the annual U.S. News and World Report survey climbed five slots to No. 10.

"Because he has this background in finance and running a department, he has a lot more common sense and feet on the ground pragmatism than an airy-fairy superstar theorist," said John Boyd, a finance professor at the U.

However, Kocherlakota will have big shoes to fill after Stern, who became a national expert on the so-called "too big to fail" problem. In interviews and speeches, Stern argued that large financial institutions and their creditors engage in riskier behavior when they know the government is protecting them from failure. Stern's views have been at the forefront of public policy discussions over how to regulate so-called "systemically significant" institutions that could wreak havoc if allowed to fail.

Arthur Rolnick, director of research at the Minneapolis Fed, said that although Kocherlakota graduated from the University of Chicago -- known for its free market approach to economics -- he is not dogmatic. "He's a very strong academic who will bring the best research to the table."

Before joining the U, Kocherlakota was an economics professor at Stanford University, the University of Iowa and Northwestern University.

He will lead one of the 12 Fed district banks that set national monetary policy.

Chris Serres • 612-673-4308