The Federal Reserve Board announced on Thursday that Chairman Ben S. Bernanke will deliver a series of lectures aimed at college students. Beginning on March 20, he will lead four classes on "The Federal Reserve and the Financial Crisis" as part of a course offered to undergraduates at the George Washington University School of Business. The class will feature a variety of speakers who will discuss central banking. Chairman Bernanke's lectures are scheduled for March 20, 22, 27 and 29 and will begin at 12:45 pm EDT.
To access the lecture series live, use the following link: http://www.ustream.tv/federalreserve
More info: http://www.federalreserve.gov/newsevents/lectures/about.htm
Tuesday, February 28, 2012
Professor Bernanke teaches the world
A friend in the Federal Reserve sends along the following information:
Monday, February 27, 2012
Did Fiscal Stimulus Work?
Larry Summers and John Taylor will be debating this topic at Harvard, this Tuesday, from 4 to 5 PM, in Emerson Hall, Room 105. It should be fun. (Sadly, I will miss it, as I am now in Seoul, Korea, giving a talk at a conference.)
Sunday, February 26, 2012
IQ and Investment Decisions
In today's NY Times, Robert Shiller reports:
Even after taking into account factors like income and education, the authors concluded that people with relatively high I.Q.’s typically diversify their investment portfolios more than those with lower scores and invest more heavily in the stock market. They also tend to favor small-capitalization stocks, which have historically beaten the broader market, as well as companies with high book values relative to their share prices.
Sunday NYT: The Republican Party, Sex , and Autos
Interesting stuff in the Sunday NYT. On the editorial page, A Million Jobs, concerning the GM/Chrysler bailout. One could make the case that this was just an efficient reorganization that used the power of the government effectively. In any bailout, we should be worried about moral hazard, but in this case maybe the alternative was a private sector "reorganization," under which some organizational capital was lost forever. And you could add in Krugman's complementarity arguments. What do you think? Give me a counter-argument.
On another matter, not unrelated, is Maureen Dowd's column. I enjoy her column, though I don't always agree. She's good when confronting the Roman Catholic Church. I love this quote:
Later on:
On another matter, not unrelated, is Maureen Dowd's column. I enjoy her column, though I don't always agree. She's good when confronting the Roman Catholic Church. I love this quote:
“Republicans being against sex is not good,” the G.O.P. strategist Alex Castellanos told me mournfully. “Sex is popular.”
Later on:
Their [Republicans'] jitters increased exponentially as they watched Mitt belly-flop in his hometown on Friday, giving a dreadful rehash of his economic ideas in a virtually empty Ford Field in Detroit, babbling again about the “right height” of Michigan trees and blurting out that Ann “drives a couple of Cadillacs.”It looks like Romney will win the nomination, but he is going south (and that's not to Alabama or some such) with regard to November. I think his biggest problem is that he would probably score zero on this test.
Saturday, February 25, 2012
Amplification and Indeterminacy
How do we want to think about financial crises? We have some idea that there is something unusual going on - something we might see every 15, 20, or 30 years, say, in a given economy. But what is the process that drives a financial crisis? How does the phenomenon get started, and what propagates it?
I'm teaching a second-year PhD course, which is basically financial crisis economics. I gathered together a set of papers, some of which I had seen, and some of which were on conference programs, the key filter being that these papers had to have been somehow inspired by the financial crisis. The list includes two of my own papers, one of which is not quite ready for public consumption (maybe in a month or so).
Here's an idea that struck me in class last Thursday. There are basically two ways to think about financial crises, or the process by which financial factors affect aggregate economic activity. The first is indeterminacy. This is the basic idea behind Diamond and Dybvig's (JPE, 1983) banking model. A bank run, or a panic, is a bad equilibrium. There is a good equilibrium in which the panic does not happen, but there may exist an equilibrium where everyone wants to run to the bank to withdraw his or her deposit, under the self-fulfilling belief that everyone else runs to the bank. The paper by Ennis/Keister on my reading list (and their other recent work) gives you a nice summary of where the Diamond-Dybvig literature went.
The second process potentially driving a financial crisis is amplification - the idea that financial factors can amplify a small shock to the economy and make it a big one. That's the idea in the "financial accelerator" literature, which evolves from early work of mine (JPE 1987), Bernanke-Gertler (1989), and Bernanke-Gertler-Gilchrist. I think the upshot of that literature is that there is not much propagation. However, there's an idea in my JPE '87 paper that Larry Christiano has used empirically, which seems to get some mileage. In a costly-state-verification world (which gives rise to non-contingent debt under some circumstances), more risk will be bad even if economic agents are risk-neutral. Christiano measures the importantance of "risk shocks" for business cycles and finds that the shocks are important in general (and not just in the past 4 years).
What struck me is that my idea of what the real estate bubble was and Jim Bullard's view are quite different. My view is that the bubble was about amplification. A piece of the price of houses is always due to a type of "monetary bubble." Equity in a house is collateral which can be used by the homeowner to borrow; the mortgage on the house can be packaged as a mortgage-backed security, and that security can be used in financial exchange, and as collateral, perhaps multiple times. Thus, through an amplification effect, the housing collateral potentially supports a very large quantity of credit, and that feeds back into housing prices. The financial crisis was about incentive problems that caused the monetary bubble to be larger than was socially optimal, and once financial market participants caught on, that piece of the bubble burst.
Bullard's view is essentially indeterminacy. The real estate bubble was a self-fulfilling good equilibrium, and now we're in a bad one.
The two views get us to the same place. I.e. potential GDP is much smaller than the Old Keynesians are telling us. What you see may be what you get. However, the policy conclusions implied by each view could be quite different.
Addendum: See this paper by Dorofeenko/Lee/Salyer on how risk shocks are propagated through the housing sector.
I'm teaching a second-year PhD course, which is basically financial crisis economics. I gathered together a set of papers, some of which I had seen, and some of which were on conference programs, the key filter being that these papers had to have been somehow inspired by the financial crisis. The list includes two of my own papers, one of which is not quite ready for public consumption (maybe in a month or so).
Here's an idea that struck me in class last Thursday. There are basically two ways to think about financial crises, or the process by which financial factors affect aggregate economic activity. The first is indeterminacy. This is the basic idea behind Diamond and Dybvig's (JPE, 1983) banking model. A bank run, or a panic, is a bad equilibrium. There is a good equilibrium in which the panic does not happen, but there may exist an equilibrium where everyone wants to run to the bank to withdraw his or her deposit, under the self-fulfilling belief that everyone else runs to the bank. The paper by Ennis/Keister on my reading list (and their other recent work) gives you a nice summary of where the Diamond-Dybvig literature went.
The second process potentially driving a financial crisis is amplification - the idea that financial factors can amplify a small shock to the economy and make it a big one. That's the idea in the "financial accelerator" literature, which evolves from early work of mine (JPE 1987), Bernanke-Gertler (1989), and Bernanke-Gertler-Gilchrist. I think the upshot of that literature is that there is not much propagation. However, there's an idea in my JPE '87 paper that Larry Christiano has used empirically, which seems to get some mileage. In a costly-state-verification world (which gives rise to non-contingent debt under some circumstances), more risk will be bad even if economic agents are risk-neutral. Christiano measures the importantance of "risk shocks" for business cycles and finds that the shocks are important in general (and not just in the past 4 years).
What struck me is that my idea of what the real estate bubble was and Jim Bullard's view are quite different. My view is that the bubble was about amplification. A piece of the price of houses is always due to a type of "monetary bubble." Equity in a house is collateral which can be used by the homeowner to borrow; the mortgage on the house can be packaged as a mortgage-backed security, and that security can be used in financial exchange, and as collateral, perhaps multiple times. Thus, through an amplification effect, the housing collateral potentially supports a very large quantity of credit, and that feeds back into housing prices. The financial crisis was about incentive problems that caused the monetary bubble to be larger than was socially optimal, and once financial market participants caught on, that piece of the bubble burst.
Bullard's view is essentially indeterminacy. The real estate bubble was a self-fulfilling good equilibrium, and now we're in a bad one.
The two views get us to the same place. I.e. potential GDP is much smaller than the Old Keynesians are telling us. What you see may be what you get. However, the policy conclusions implied by each view could be quite different.
Addendum: See this paper by Dorofeenko/Lee/Salyer on how risk shocks are propagated through the housing sector.
Academic Uses of Social Media
This is from a panel discussion held at Harvard last year. (I just recently learned that it was posted online.) I show up around minute 13:00.
Abbott and Costello explain unemployment
Thanks to U Chicago's Allen Sanderson for sending this along:
COSTELLO: I want to talk about the unemployment rate in America.
ABBOTT: Good "subject". Terrible "times". It's about 9%.
COSTELLO: That many people are out of work?
ABBOTT: No, that's 16%.
COSTELLO: You just said 9%.
ABBOTT: 9% Unemployed.
COSTELLO: Right 9% out of work.
ABBOTT: No, that's 16%.
COSTELLO: Okay, so it's 16% unemployed.
ABBOTT: No, that's 9%...
COSTELLO: WAIT A MINUTE. Is it 9% or 16%?
ABBOTT: 9% are unemployed. 16% are out of work.
COSTELLO: If you are out of work you are unemployed.
ABBOTT: No, you can't count the "Out of Work" as the unemployed. You have to look for work to be unemployed.
COSTELLO: But ... they are out of work!
ABBOTT: No, you miss my point.
COSTELLO: What point?
ABBOTT: Someone who doesn't look for work, can't be counted with those who look for work. It wouldn't be fair.
COSTELLO: To who?
ABBOTT: The unemployed.
COSTELLO: But they are ALL out of work.
ABBOTT: No, the unemployed are actively looking for work...Those who are out of work stopped looking. They gave up. And, if you give up, you are no longer in the ranks of the unemployed.
COSTELLO: So if you're off the unemployment roles, that would count as less unemployment?
ABBOTT: Unemployment would go down. Absolutely!
COSTELLO: The unemployment just goes down because you don't look for work?
ABBOTT: Absolutely it goes down. That's how you get to 9%. Otherwise it would be 16%. You don't want to read about 16% unemployment do ya?
COSTELLO: That would be frightening.
ABBOTT: Absolutely.
COSTELLO: Wait, I got a question for you. That means they're two ways to bring down the unemployment number?
ABBOTT: Two ways is correct.
COSTELLO: Unemployment can go down if someone gets a job?
ABBOTT: Correct.
COSTELLO: And unemployment can also go down if you stop looking for a job?
ABBOTT: Bingo.
COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to just stop looking for work.
ABBOTT: Now you're thinking like an economist.
COSTELLO: I don't even know what the hell I just said!
COSTELLO: I want to talk about the unemployment rate in America.
ABBOTT: Good "subject". Terrible "times". It's about 9%.
COSTELLO: That many people are out of work?
ABBOTT: No, that's 16%.
COSTELLO: You just said 9%.
ABBOTT: 9% Unemployed.
COSTELLO: Right 9% out of work.
ABBOTT: No, that's 16%.
COSTELLO: Okay, so it's 16% unemployed.
ABBOTT: No, that's 9%...
COSTELLO: WAIT A MINUTE. Is it 9% or 16%?
ABBOTT: 9% are unemployed. 16% are out of work.
COSTELLO: If you are out of work you are unemployed.
ABBOTT: No, you can't count the "Out of Work" as the unemployed. You have to look for work to be unemployed.
COSTELLO: But ... they are out of work!
ABBOTT: No, you miss my point.
COSTELLO: What point?
ABBOTT: Someone who doesn't look for work, can't be counted with those who look for work. It wouldn't be fair.
COSTELLO: To who?
ABBOTT: The unemployed.
COSTELLO: But they are ALL out of work.
ABBOTT: No, the unemployed are actively looking for work...Those who are out of work stopped looking. They gave up. And, if you give up, you are no longer in the ranks of the unemployed.
COSTELLO: So if you're off the unemployment roles, that would count as less unemployment?
ABBOTT: Unemployment would go down. Absolutely!
COSTELLO: The unemployment just goes down because you don't look for work?
ABBOTT: Absolutely it goes down. That's how you get to 9%. Otherwise it would be 16%. You don't want to read about 16% unemployment do ya?
COSTELLO: That would be frightening.
ABBOTT: Absolutely.
COSTELLO: Wait, I got a question for you. That means they're two ways to bring down the unemployment number?
ABBOTT: Two ways is correct.
COSTELLO: Unemployment can go down if someone gets a job?
ABBOTT: Correct.
COSTELLO: And unemployment can also go down if you stop looking for a job?
ABBOTT: Bingo.
COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to just stop looking for work.
ABBOTT: Now you're thinking like an economist.
COSTELLO: I don't even know what the hell I just said!
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