Paul Volcker, the former chairman of the Federal Reserve, has been chosen to head a new panel in Barack Obama's White House aimed at reviving the American economy.

A spokeswoman for Barack Obama, the President-elect, confirmed that Mr Volcker had been appointed chairman of the Economic Recovery Advisory Board.

Mr Obama's transition office also confirmed today that Austan Goolsbee, an economist at the University of Chicago and policy adviser to the new President, will serve as staff director on the panel, which will also offer advice on stabilising the financial markets.

Mr Volcker is a key figure in American economic history. Before the appointment, Ethan Harris, co-head of US economic research at Barclays Capital in New York, said of Mr Volcker: “He is one of the most independent thinking guys you could find and brings massive reputation.”

Now 81, Mr Volcker became chairman of the Federal Reserve in 1979, as America laboured under an inflation rate of more than 10 per cent and President Jimmy Carter grappled with a hostage crisis in Iran and a petrol crisis at home.

Mr Volcker pushed through aggressive anti-inflationary measures, including raising interest rates and restricting the amount of money in the banking systems. At the time, he was charged with provoking one of the worst recessions since the 1930s, but he has since been hailed as a model for central bankers around the world.

He resigned as Fed chairman months before the stock market crash in 1987. He became chairman of Wolfensohn, a New York investment bank, taught at New York University's business school, and served on the board of companies including Nestle and MBIA.

More recently, he led an investigation into the way Swiss banks handled the accounts of Holocaust victims, and headed the probe into the UN oil-for-food scandal.

He was an important adviser to Mr Obama throughout the election campaign, and was tipped as a possible Treasury Secretary in the new administration. Timothy Geithner, chairman of the Federal Reserve Bank of New York, was appointed to that role on Monday.

It is expected that Mr Volcker will press for tougher restrictions on the financial system when he takes up his new role. He has already spoken of what he sees as the failure of Wall Street's risk management.

In April this year, he said: “The bright new financial system, for all its talented participants, for all its rich rewards, has failed the test of the marketplace.”

“It all adds up to a clarion call for an effective response.”

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