Archive

The tail risks that may be generated by Mario Draghi’s monetary policy innovations in the Eurozone include even more intense versions of Andrew Haldane’s “Doom Loops”

Do large firm dynamics drive the business cycle? We answer this question by developing a quantitative theory of aggregate fluctuations caused by firm-level disturbances alone. We show that a standard heterogeneous firm dynamics setup already contains in it a theory of the business cycle, without appealing to aggregate shocks.

Welcome to our website, and thus weblog, relaunch.

We call attention to the class of models that serve as the foundation for the rational expectations hypothesis (REH). Models in this class rule out completely any structural change that cannot be fully anticipated with a probabilistic or other quantitative rule. REH models are abstractions of rational decision-making, but only in a hypothetical world in which participants can fully anticipate when and how they might revise their understanding of the process driving outcomes.

Together with Azim Premji University (APU), we’re creating opportunities for advanced PHDs, leading academics and experts to focus on the urgent problems facing the world’s most populous democracy.

Supporting doctoral research through granting PhDs, appointing post-doctoral fellowships, hosting leading international economists, sponsoring major conferences and providing seed funding for cutting-edge research projects.

A Ruskinian framework for economic justice.

Since 2011, the Institute has partnered with the Centre for International Governance Innovation (CIGI) to change the way the field approaches the interplay between economics and governance, accelerating the development of new economic thinking.

We propose several multivariate variance ratio statistics. We derive the asymptotic distribution of the statistics and scalar functions thereof under the null hypothesis that returns are unpredictable after a constant mean adjustment (i.e., under the weak form Efficient Market Hypothesis). We do not impose the no leverage assumption of Lo and MacKinlay (1988) but our asymptotic standard errors are relatively simple and in particular do not require the selection of a bandwidth parameter. We extend the framework to allow for a time varying risk premium through common systematic factors.

“The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.” John M. Keynes, The End of Laissez Faire, 1926 (p. 44)

We develop adjustments to align the NIPA measures of key household flows with cash flow concepts that better reflect household budgets and demand.

Rapid private-debt growth threw Japan into crisis in 1991 and did the same to the United States and Europe in 2008. China may be next.

This paper discusses the main issues about increasing inequality, whether it matters and its impact on economic activity and growth. It starts by briefly considering the empirical evidence of the share of income going to the top one percent since 1945 in the advanced countries. It then considers whether this represents an increase in the productivity of the top one percent or merely an extraction of economic rent.

The Institute partners with the Asia Global Institute (AGI), an independent think tank in Hong Kong, to encourage global policy and actions to move toward a prosperous and sustainable future for the world.

Economic activity cannot be explained solely by modeling rational behavior. Our partnership with the Kiel Institute brings interdisciplinary scholars together to develop new perspectives on human motivation and decision-making.

A jointly-created research institute devoted to finding a more realistic way of thinking about the economy, using tools from decision theory and the theory of networks to tackle problems such as unemployment and inequality.

Our partnership with the Oxford Martin School at the University of Oxford, is conducting visionary interdisciplinary research on a wide range of economic and public policy challenges.

How can we reconnect economic success to socioeconomic outcomes?

The Human Capital and Economic Opportunity Global Working Group (HCEO) is an interdisciplinary collaboration incorporating biological, sociological and psychological perspectives into traditional economic questions of inequality and human capital.

As the pace of financial crises quickens and the volatility of economic shocks intensifies, we need new ways to understand and respond to instability. This program coordinates our research efforts on finance, macroeconomics, and monetary economics.

Inequality and distribution—areas underserved by mainstream economics—sit at the heart of The Institute’s work. This program brings together researchers from a variety of disciplines to develop alternative approaches to the problem of inequality.

Michael Greenberger discusses the current state of play of regulatory reform and gives a barely passing grade.

The solutions to Greece’s crisis challenge many existing economic paradigms, including the concept of “money” itself.

Rana Dasgupta shares his view of the contradictions and tensions of India’s economic and political scenes.

Cecilia Nahon, Argentina’s Ambassador to Washington, DC., discusses the issues plaguing the Argentine government in it’s attempts to conclude debt restructuring.

My friend and “grown-up kid” Yann Giraud just called my attention to Paul Krugman’s recent column, “Empire of the Institute”, on Roy Weintraub’s recently edited HOPE volume “MIT and the Transformation of American Economics” (to which three Playground kids contributed: Yann, Beatrice Cherrier and myself).

A British national of Bengali origin, novelist Rana Dasgupta recently turned to nonfiction to explore the explosive social and economic changes in Delhi starting in 1991, when India launched a series of profoundly transformative economic reforms.

Is moving away from coal and into shale - rather than directly into renewables - a worthy move from an economic as well as environmental point of view?

This chapter surveys experimental research on networks in economics.

This text is part of a research project still in working progress that collects different contributions by the author and rewrite and reanalyse some reflections, already present, in a different form, in some publications:

It is highly fitting to have a panel devoted to ‘teaching economics’ in Paris. No less than 15 years ago, in 2000, in downtown Paris, a group of students from the École Normale Supérieure, one of France’s élite schools, wrote a petition asking economics teaching to be devoted to the study of real-world problems, with an instrumental use of mathematics rather than to the description of imaginary worlds based on meaningless formalizations.

With the approval of the reform proposals by the Greek government, the Eurozone has returned to calmer waters. But it is only a brief interlude.

The interaction between social structure and markets remains a central theme in the social sciences. In some instances, markets can build on and enhance social networks’ economic role; in other contexts, markets appear to be in direct competition with social networks. The impact of markets on inequality and welfare is also varying: while markets can sometimes offer valuable outside options to marginalised individuals, in other situations only well connected and better off individuals can benefit from them.

When the adoption of a new labor‐saving technology increases labor productivity, it is an open question whether the economy adjusts in the medium‐term by decreasing employment or increasing output. This paper studies the effects of cheaper electricity on the labor market during the Great Depression.

Individuals derive benefits from their connections, but these may, at the same time, transmit external threats. Individuals therefore invest in security to protect themselves. However, the incentives to invest in security depend on their network exposures. We study the problem of designing a network that provides the right individual incentives.

Do economists live in a world of their own?

Fresh from discussions at the UN regarding the Argentinian debt crisis, Institute grantee Kevin Gallagher tells us about his new book and how developing countries can look for opportunity amidst modern financial obstacles.

I need a history of policy evaluation.

It is instructive to view the study of networks in economics as a shift in paradigm, in the sense of Kuhn (1962). This perspective helps us locate the innovation that networks bring to economics, appreciate different strands of the research, assess the current state of the subject and identify the challenges.

Shiller (1981) and others have shown that the quantitative predictions of the REH present-value model are inconsistent with time-series data on stock prices and dividends. In this paper, we assess the empirical relevance of the model without explicitly representing how a rational market participant forecasts dividends and interest rates.

John Smithin argues that we need to rethink the “consensus” with tools old and new.

The ongoing explosion of the incomes of the richest households and the erosion of middle-class employment opportunities for most of the rest have become integrally related in the now-normal operation of the U.S. economy.

Last year I pointed out here (and here) that macroeconomists were making themselves comfortable in the blogosphere to discuss theoretical, methodological, and, why not, historical issues of their field (see also a nice post by our fellow kid, Beatrice).

How can we better protect Main Street from the externalities of Wall Street?

As you may remember, I had decided to cease contributing to this blog a few months ago. Nevertheless, I thought I could use my completely illegitimate administrator rights to post one last piece dealing with the recent events in France

The turmoil of Brexit and the populist challenge across Europe are consequences of austerity policies that have brought misery to millions of ordinary voters. In this interview first published last January, Servaas Storm warned of the dangers of economic decision making divorced from democracy and from the social consequences of its prescriptions

Private data is leaked more and more in our society. Wikileaks, Facebook, and identity theft are just three examples. Network defenses are constantly under attack from cyber criminals, organized hacktivists, and even disgruntled ex-employees.

Repression in China today is at its most severe point since the aftermath of 1989. David Wu discusses the tensions inherent in a one-party state which is struggling to aspire toward a more predictable rule of law.

This research project posits that increasing income concentration and erosion of the middle class are interrelated results of a change in the dominant corporate resource-allocation regime from “retain-and-reinvest” to “downsize-and-distribute,” manifested by massive distributions to shareholders and the disappearance of “collective and cumulative” careers.

This research project studies the evolution of monetary policy since the financial crisis, as regards to changes in implementation mechanisms and use of conventional/unconventional instruments of monetary policy, as well as its mpact on macroeconomic variables, including income distribution.

The objective of this proposal is to build distributional statistics of income and wealth consistent with national accounts aggregates for the United States.

This research project improves our understanding of the effects of intellectual property rights—and in particular copyrights—on creativity and innovation.

This research project develops a “Money View” analysis of the recent evolution of China’s financial system.

This research project explores the process of modern (shadow) money creation in hierarchical and interconnected monetary systems. In theorizing the dynamic instability of shadow money, it provides a comparative account of the structural and institutional specifics of shadow money in the US, Eurozone and China, and the policy challenges thereof.

This research project studies the macroeconomic effects of rising inequality by focusing not on top incomes but instead on the economics of the “bottom 99%” which has been squeezed out by rising inequality and falling labor shares.

This research project explores the underlying limits—especially of the social and economic sciences—in identifying causalities including, among other aspects, the strong epistemological and statistical limitations of and assumptions behind the methods applied.

This research project addresses the problem of inferring causal relationships in economics. It investigates the philosophical roots of the problem and develops econometric tools which take into account the complexity of economic systems.

This research project proposes to revise common interpretations of 20th-century economic history by unearthing the often overlooked story of tax havens and offshore finance, Eurodollars, and export processing zones between the 1870s and 1980s.

Recent work has highlighted the need for innovation investments to be understood through a mission oriented approach rather than a market failure one (Foray et al. 2012). However, this work has only focused on state agencies, such as DARPA, overlooking the role of public financial institutions such as state investment banks.

This research project models financial interdependencies in the form of dynamic networks and propose policy and risk measurement tools to pre-identify contagion.

This research project uses information from digitized Google books and library catalogues to create new measures of technological innovation and diffusion for OECD countries from 1850 to the present.

This research project offers a historical taxonomy of organizational ways that governments fund and implement industrial and innovation policy as well as a taxonomy of contemporary implementation practices.

This research project provides guidance to policymakers for designing policies that are able to bring economies out of recessions by identifying the best policies to fight unemployment and stabilize the business cycle while alleviating inequality.

This research project provides a better understanding of the processes that accompanied the reforms of the Austrian schilling in 1947 and the birth of the deutschmark in 1948 by merging archival sources with financial data from banks and markets and comparing the two reforms.

This research project brings together ideas from the literature on robustness in macroeconomics, network theory, and evolutionary game theory to study the way in which perceptions of safe asset status evolve among financial market participants.

This research project explores the causes and consequences of the rise of China’s shadow banks based on the Modern Money Theory and its extension on the analysis on modern financial systems.

This research project develops a theoretical framework to examine the relation between arbitrage capital and the price properties of different asset markets.

This research project combines interdisciplinary expertise with a wholly unique database on hedge funds compiled by the Foundation for Fund Governance to examine the organization and governance of the offshore hedge fund industry.

This research project employs a new theory and innovative empirical analysis as a new lens for understanding financial instability and financial crises, focusing on the Great Depression.

This research project investigates the rise of federal credit programs in the United States, leading to a better understanding of the development of federal credit programs.

This research project rescues the work of the London and Cambridge Economic Service, arguably the first body in Britain to collect and disseminate economic statistics.

This research project explores the origins of covered mortgage bonds and tests for the impact of financial development on economic growth by analyzing the Prussian Landschaften.

This research project re-examines the debates around the time of the Great Depression and compares them with those before and since the start of the Long Recession in 2007/8, focusing on Keynes, Hayek, and their followers.

This research project explores whether the financialization of the US economy has contributed to rising income inequality through complementary analyses at the individual, firm and industry levels.

This research project formulates a normative theory of learning both preferences and probabilities that explains a broad spectrum of economic behavior heretofore judged irrational.

This research project develops a new behavioral paradigm of heterogeneous expectations that can help explain the sources of financial and macroeconomic instability and find possible policy remedies.

This research project develops tools that allow social scientists to understand how and when social factors, such as peer influences, role models, or norms, affect individual choices.

This research project studies how the Basel Committee on Banking Supervision and the International Swaps and Derivatives Association operate and the factors that help shape the extent to which they are able to ensure financial stability from a public-interest standpoint.

This research project establishes the conditions under which international capital flows are a force for stability, thereby improving the capacity for macroeconomic policy to avoid large boom-bust cycles.

This research project develops a rigorous new theoretical way to study controls of international capital flows and determine their optimal magnitude using a promising new empirical methodology.

This research project commences work on a supplementary edition covering much of John Maynard Keynes’s significant writings on economics, philosophy, and politics that remain unpublished.

This research project aims at analyzing the role of economic models in economic policy-making. Specifically, we investigate the impact of CGE models, related to the TTIP debate, and potential output models, related to fiscal policy in the EU, on politicial decision-making and public debate.

This research project will study the long-run interactions between transport infrastructure and economic development using spatially-disaggregated data for England and Wales over the period c.1817—2011. It will look to inform policy toward large investments in physical infrastructures.

This research project traces the history of German energy policy from 1945 to the present. It explores the political economy behind Germany’s transition from coal, to oil, to green energy, the crises driving these shifts, and the evolving efforts to balance affordability with security and environmental protection.

This research project investigates the air quality co-benefits of climate policy. Reduced burning of fossil fuels curbs not only CO2 emissions but also emissions of hazardous co-pollutants, such as particulate matter. The extent of air quality co-benefits relative to CO2 reduction varies across regions and pollution sources, and hence the distribution of emissions reductions matters for both efficiency and equity.

This research project uses macroeconomic data going back to the mid-19th century to analyze issues such as the relation between income distribution and economic growth; and how debt, asset prices, and growth moved together the last 160 years.

This research project examines the long process of innovation at Fair Isaac, the analytics firm behind the FICO scoring system.