Archive for March 28th, 2014

Did Hyman Minsky find the secret behind financial crashes?

March 28, 2014

I think it has been a major mistake of the profession to ignore writings of Minsky and his key ideas. Why the profession has ignored it is obvious as he said things which are just not going to be accepted by the mainstream profession.

BBC has this article on five lessons from Minsky:

 

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Which countries actually suffer from deflation in Eurozone…

March 28, 2014

There is a huge press and expert coverage on rising possibility of deflation in Eurozone and what ECB should do/not do..But then as we know EZ is a union of many countries. So which countries are really suffering from deflation in EZ?

Eilert Husabø of Norges Bank in this short note suggests it is only Greece which is suffering:

Euro area inflation has fallen to a low level, which has given rise to concerns about deflation. We have constructed an indicator designed to capture whether a country is in deflation. The indicator shows that the euro area as a whole and most individual countries are now farther away from deflation than during the financial crisis, with the exception of periphery countries where the indicator is approaching or exceeds the levels prevailing during the financial crisis. Greece is the only country experiencing deflation.

Again Greece seems to be the only culprit.

Crazy stuff and just the opposite of what others seem to be saying that most EZ is under deflation..The problems of managing the EZ and one sizing monetary policy continues..

Bernanke in theory and practice…were the two aligned?

March 28, 2014

Alexander Gill of North Carolina State University has this paper evaluating Bernanke in theory and practice. I don’t think we have had a policymaker whose research interests matched so close to the policy world. He studied Great depression and chaired Fed when there was a near depression 2.0.

Prof Gill says largely the two things match:

Ben Bernanke researched monetary policy for over 25 years prior to becoming a policymaker, and his two-term career as Chairman of the Federal Reserve featured a severe recession coupled with a financial crisis, a chief subject of Bernanke’s research. His reaction to economic events is noteworthy in its originality and breadth, but its intellectual underpinnings are, with a few exceptions discussed in the paper, not without written precedent. This paper will summarize and connect Bernanke’s research and policymaking and show that the two are closely aligned.

The author reviews the research of Prof Bernanke and then looks at how he use his research into policy. At the end he says:

A lifelong fascination with the role of banking in the economy led Bernanke to dedicate himself to ensuring that the mistakes of past monetary policy makers not be repeated. His consistency and dedication on these matters lend credence to the claim that he is genuine in his professed understanding of economics, history, and policymaking and in his desire to improve lives. In the introduction to his book Essays on the Great Depression, Bernanke claims that there is a consensus among macroeconomics that free markets are best for achieving economic growth but that central intervention is sometimes necessary to avoid some unwanted consequences of unbridled capitalism, like recessions. But we can take full advantage of the capitalist system’s bene cial properties under an interventionist regime that allows us to avoid some of the costs of recessions as long as the \will to do so” exists ([Bernanke, 2000b], p. 151). He could not have known it then, but the will to do so will critically depend on the perceived success of his own policies over the course of the Great Recession.

This is just a drop in the research ocean we will see on Bernanke and his Fed term in future…


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