Archive for September 3rd, 2007

Role of Financial Markets in a Crisis

September 3, 2007

I am not sure how many have read this paper. It was written in 1983 and is still a very relevant paper especially in today’s times. He has contributed a lot to understanding of inflation, monetary policy but his major contribution to field of economics is his understanding of financial markets and its impact on economy.

This paper is based on the Great Depression of 1937. The abstract says:

This paper examines the effects of the financial crisis of the 1930s on the path of aggregate output during that period. Our approach is complementary to that of Friedman and Schwartz, who emphasized the monetary impact of the bank failures; we focus on non-monetary (primarily credit-related) aspects of the financial sector–output link and consider the problems of debtors as well as those of the banking system. We argue that the financial disruptions of 1930-33 reduced the efficiency of the credit allocation process; and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand. Evidence suggests that effects of this type can help explain the unusual length and depth of the Great Depression.

Read it for great insights on financial markets and how they impact teh functioning. Superb


Assorted Links

September 3, 2007

1. WSJ Blog covers the Jackson Hole Symposium (I mentioned about it here). The papers are not out yet. So we have to be contecnt with the coverage bit. Read views of Feldstein & Taylor, Mishkin, Ed Leamer. Superb ideas on Housing Markets.

2. Willem Buiters’ Blog is a must read. His views are terrific, very different and provide a lot of food for thought. He discusses if credit crunch is a lemon problem. Well, he says it is not.

3. James Hamilton of EconBrowser also covers the Jackson Hole conference. Here he discusses Shiller’s paper, here he discusses his own views (see the photo of the place from his room) and here he discussesTaylor’s views. The papers sound damn exciting. I am waiting for them to come online.

4. Jaideep Mishra makes a case for getting our corp debt market going. He also covers a new research paper on infrastructure. I had also mentioned about a similar kind of paper here.

5. Mythili Bhusnurmath supports the RBI Holding company structure. I had mentioned about the RBI paper here.

6. BS has a nice article on India’s Sub-Prime market.

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