Further evidence on the decline in bank lending.
Category Archives: Federal Reserve
High Anxiety (about Interest and Inflation Rates)
In March 2001, I was tasked to follow developments in Japanese macro policy (including monetary, exchange rate, and banking recapitalization issues). Readers will be tempted to ask what this has to do with current events. Well, at the time, Japan was facing rapidly rising net debt-to-GDP ratios (rising from 60.4 ppts of GDP to 84.6 ppts from 2000 to 2005), and was embarking upon a policy of quantitative easing in an attempt to stave off a deep recession. And yet opponents of quantitative easing worried about hyper-inflation, even as y/y inflation at the time remained mired in the negative range. I didn’t understand the fears at the time; and I still don’t. Now flash forward eight years, and move across the Pacific.
More papers on the credit crunch
Links to some interesting papers that I recently read.
Tracking the recession
Here are links to perspectives from others on where the economy stands at the moment.
Inflation and relative prices
There are persuasive reasons why we’d be better off today with an inflation rate higher than what we’ve seen over the last six months. But while a uniform expansion that raised all wages and prices by the same amount would be helpful, what the Fed could actually achieve in the present situation may be something less desirable.
Macroeconomic Schisms
There has been a lot of breast-beating in the press and in the blogosphere about how economists failed to discern the possibility that not all was going well in the years leading up the current financial and economic crisis [1]. I think the notion that all economists were blithely optimistic has been dispelled (well, okay, here’s a couple of exceptions: Dan Gross h/t Free Exchange, A. Kaletsky). At the risk of some gross simplifications, I will speculate that there was —
until recently — less optimism among academic macroeconomists than Wall Street economists. There was probably less anxiety among
say finance professors who focused on asset pricing (as opposed those who worked in banking) than macroeconomists (Dani Rodrik highlights the diversity). One divide that
I think is not particularly relevant in locating the source of the crisis is the most well known one — specifically whether prices
are sticky.
In my opinion, the big divide in thinking relates to how economists conceive of financial markets working. This is a divide that cuts across other divides. For instance, the Hicksian
decomposition (IS-LM), in its simplest incarnation, treats the financial world as one wherein bonds are identical, and the only means of borrowing; there is no separate channel for lending, say via bank loans, to influence aggregate demand (see this post for the many channels of monetary policy). In the real business cycle literature, and many New Keynesian DSGE models, there is a representative bond (and lending rate) which summarizes the asset markets (see Camilo Tovar’s survey of DSGEs for a discussion).
The Demise of the Dollar? Should We Worry about Quantitative Easing and Deficit Spending?
Over the weekend, I was working on my long delayed manuscript on exchange rate modeling [0], and pondering how useful the conventional econometric techniques were for making predictions about the future value of the dollar.
The Yield Curve, across Countries, across Time
A year and half ago, I asked “Does it matter that yield curves (around the world) are sloping downward?” (October 12, 2007). I included this snapshot of term premia in the post:
Consequences of the Oil Shock of 2007-08
In a follow-up on my earlier post, I’d now like to discuss the second part of my paper, Causes and Consequences of the Oil Shock of 2007-08, which I presented today at a conference at the Brookings Institution. Here I’ll review the role that the oil price shock may have played in causing the economic recession that began in 2007:Q4.
Causes of the Oil Shock of 2007-08
I will be presenting my latest research paper, Causes and Consequences of the Oil Shock of 2007-08, at a conference today at the Brookings Institution. Here I review some results from that paper about what caused oil prices to rise so spectacularly in 2007-08 only to decline even more dramatically afterward.