Tuesday, September 22, 2009

Promised Econ Link Fest

1) The Blog Wars : De Long & Krugman vs. the New Classicals

De Long takes apart the New Classical case: here, here and here

2) Nick Rowe explains why money is not like other goods and assets and hence, not neutral in a non-barter economy, here and here.

Keen is a Minsky style Post-Keynesian. He has written a book called Debunking Economics, which is highly critical of neoclassical economics.

He laments the usual equilibrium analysis of the economy in the mainstream and tries to model the economy as a non-linear dynamical system using differential equations. He argues that money is endogenously created (money is there iff. there is debt). He also sees the modern capitalist economy as inherently unstable (which ties up with the dynamical model) because of the financial fragility hypothesised by Minsky.

4) Barry Eichengreen and Kevin O Rourke on the comparison between this depression and the original great depression.

Yellen is the governor of the Federal reserve of San Francisco. She argues that there is a pressing need to incorporate finance into mainstream macro, that there indeed are asset price bubbles and it may be desirable for a proactive central bank to deflate them. She also says that not all bubbles are equal, and that credit market bubbles and deleveraging need more proactive intervention than equity market booms and busts. She is however skeptical about how a central bank can go about doing it, and suggests countercyclical capital requirements (which go up in times of liquidity and go down in times of distress) as a robust policy measure.

6) 2006 paper by Alan Blinder on the main monetary policy challenges faced by central banks everywhere.

Blinder's only blind spot in the paper was his strong assertion on the issue of asset price bubbles. He asserts that central banks should not be concerning themselves with such bubbles, and gives the example of the tech bubble and bust to demonstrate how asset price fluctuations can be effectively handled post facto. In the light of recent events, it is a particularly bad example. Oh well, hindsight is perfect.

The insights on exchange rate interventions (intervene in extreme volatility), transparency of output and unemployment objectives (its necessary) and bank supervision (it may be required), and the deliberations on interest rate are quite brilliant. Do read the whole thing though - it's clear, smoothly written and really gives the lowdown on the practice of central banking.

7) Minsky & Minsky-like

What can I say that hasn't been said before? From wiki,

Dr. Minsky proposed theories linking financial market fragility, in the normal life cycle of an economy, with speculative investment bubbles endogenous to financial markets. Minsky claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. As a result of such speculative borrowing bubbles, banks and lenders tighten credit availability, even to companies that can afford loans, and the economy subsequently contracts.

This slow movement of the financial system from stability to crisis is something for which Minsky is best known, and the phrase "Minsky moment" refers to this aspect of Minsky's academic work.

Paul McCulley's Minsky inspired take on the 'shadow banking system', a term that he coined. Incidentally, Janet Yellen also refers to McCulley approvingly in her address. Oh well, PIMCO is just a great bond fund.

8) The history, development, state and relevance of macro (the non-vitriolic not-just-post-crisis series),

David Laidler, among the original monetarists, on Lucas, Keynes and macro.

Robert Gordon, on why 1978 era macro might be the best guide to the crisis. Some insightful ideas about the differences in goods that have 'auction markets' (like oil) and others that don't and what that means for macroeconomic theory.

Greg Mankiw, 2006 paper on theory vs. policy in macro. Excellent stuff!

Arnold Kling, in a smart little piece about how shortage of data affects macroeconomic debates of all hues, as a small review of Mankiw's paper.

Michael Woodford, papers on revolution and evolution in 20th century macro (1999), and a somewhat ill-fated celebration of a then new neoclassical 'consensus' in macro. (2007)

Robert Lucas, asserting that smoothening short run demand flucatuations ought to be subservient to looking at long term supply driven growth. This address forms the basis of part of the analysis in the Laidler paper. Recent events don't bear him out too well either.

Have fun!

1 comment:

avataram said...

The Cochrane versus Krugman/DeLong debate has been going on for longer. Here is a link to DeLong´s original comments on a cochrane article which (I think) started the fight. You can see Cochrane complaining about nasty comments on his website.