Collateral-Motivated Financial Innovation
... To understand these issues, first consider a benchmark case without collateral frictions. In this case, if an investor defaults on his promise (e.g., debt or a short position in an Arrow security), his counterparty can seize the collateral the investor has posted for the trade and the defaulting inve ...
... To understand these issues, first consider a benchmark case without collateral frictions. In this case, if an investor defaults on his promise (e.g., debt or a short position in an Arrow security), his counterparty can seize the collateral the investor has posted for the trade and the defaulting inve ...
Monetary Policy in the Post Keynesian Theoretical Framework
... effective demand and entrepreneurs would not profit. However, what does make the point of effective demand to be in such position that it exactly meets the aggregate supply and sustain the level of employment? Nothing does actually, except for appropriate economic policies. The reason for an insuffi ...
... effective demand and entrepreneurs would not profit. However, what does make the point of effective demand to be in such position that it exactly meets the aggregate supply and sustain the level of employment? Nothing does actually, except for appropriate economic policies. The reason for an insuffi ...
Y i - IES
... – Does not dispute classical demand for labor – Refuses the construction of the labor supply • Workers do not adjust to real, but to nominal wage • Nominal wage much less flexible: – general political reasons after WWI (workers not ready to accept wage cuts) – during Great Depression it was possible ...
... – Does not dispute classical demand for labor – Refuses the construction of the labor supply • Workers do not adjust to real, but to nominal wage • Nominal wage much less flexible: – general political reasons after WWI (workers not ready to accept wage cuts) – during Great Depression it was possible ...
Monetary Policy Responses in Japan - Konstantin Wacker
... Krugman (1998) explains the role of expectations in a liquidity trap with a model of a one-good, representative agent economy. The main features of the model are as follows: Each agent receives a given endowment in each period. At the beginning of every period, the central bank engages in open marke ...
... Krugman (1998) explains the role of expectations in a liquidity trap with a model of a one-good, representative agent economy. The main features of the model are as follows: Each agent receives a given endowment in each period. At the beginning of every period, the central bank engages in open marke ...
between cambridge and vienna
... economy behaving smoothly if monetary policy would only be neutral, Keynes (1936) had no such confidence and saw exogenous shifts of spending propensities triggering business cycles. However, in another area, Keynes more closely resembles the Old Austrian view than he does either the New Austrian ...
... economy behaving smoothly if monetary policy would only be neutral, Keynes (1936) had no such confidence and saw exogenous shifts of spending propensities triggering business cycles. However, in another area, Keynes more closely resembles the Old Austrian view than he does either the New Austrian ...
Vienna vs. Chicago on Monetary Issues
... “The key feature of this process [during which interest rates are low] is that it tends to raise the prices of sources of both producer and consumer services relative to the prices of the services themselves…. It therefore encourages the production of such sources and, at the same time, the direct ...
... “The key feature of this process [during which interest rates are low] is that it tends to raise the prices of sources of both producer and consumer services relative to the prices of the services themselves…. It therefore encourages the production of such sources and, at the same time, the direct ...
Communicating Asset Risk: How Name
... more “accurate” than the other in terms of informing investors about asset risk and returns. Choice between presentation formats, instead, may need to be informed by empirical results about the way common investors react to different types of information and different presentation formats. In this a ...
... more “accurate” than the other in terms of informing investors about asset risk and returns. Choice between presentation formats, instead, may need to be informed by empirical results about the way common investors react to different types of information and different presentation formats. In this a ...
Y - The University of Chicago Booth School of Business
... BUT allows the Bank to think too much - the economy is so complex that Fed policy can have delayed impact and is usually initiated too late! o Central Bank actions can often be ‘destabilizing’ (Freidman, Lucas: ...
... BUT allows the Bank to think too much - the economy is so complex that Fed policy can have delayed impact and is usually initiated too late! o Central Bank actions can often be ‘destabilizing’ (Freidman, Lucas: ...
11 imperfect competition and real and nominal price rigidity
... assumption for Lucas’s policy-ineffectiveness result, it turned out, was the assumption of continuous market clearing via perfectly flexible wages and prices. The first wave of new Keynesian analysis was devoted to examining the implications of different assumptions about how wages and prices are s ...
... assumption for Lucas’s policy-ineffectiveness result, it turned out, was the assumption of continuous market clearing via perfectly flexible wages and prices. The first wave of new Keynesian analysis was devoted to examining the implications of different assumptions about how wages and prices are s ...
AS Economics Teacher Handbook
... (i.e. what they would be willing and able to pay for it, if they were in the market for a second hand car). Identify who ‘bid' the most and proclaim him/her as the buyer. • Reveal that the car has almost no value. It is a ‘lemon’. Use this as the launch point for the discussion on asymmetric informa ...
... (i.e. what they would be willing and able to pay for it, if they were in the market for a second hand car). Identify who ‘bid' the most and proclaim him/her as the buyer. • Reveal that the car has almost no value. It is a ‘lemon’. Use this as the launch point for the discussion on asymmetric informa ...
Strategic financial innovation in segmented markets
... CDO can exploit this arbitrage. Issuing a CDO is difficult and costly. It requires first-class distribution capabilities, and typical upfront setup costs are in the region of $5 million. Or consider the new and fast-growing category of property derivatives known as property total return swaps (TRSs) ...
... CDO can exploit this arbitrage. Issuing a CDO is difficult and costly. It requires first-class distribution capabilities, and typical upfront setup costs are in the region of $5 million. Or consider the new and fast-growing category of property derivatives known as property total return swaps (TRSs) ...
Testing liquidity measures as bankruptcy prediction variables
... The ultimate goal for the bankruptcy re- searcher has been, and still is, to find the perfect procedure to predict a company’s failure. This is due to the fact that several interested parties, for example, stockholders, financiers, employees, contractors, customers and the Government would economica ...
... The ultimate goal for the bankruptcy re- searcher has been, and still is, to find the perfect procedure to predict a company’s failure. This is due to the fact that several interested parties, for example, stockholders, financiers, employees, contractors, customers and the Government would economica ...
Lecture 7. Classical monetary theory
... “A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value.”2 Failures of validity are rather obvious: Say’s law asserts that the aggregate demand for commodities always equals their aggregate supply, irrespective of the price ...
... “A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value.”2 Failures of validity are rather obvious: Say’s law asserts that the aggregate demand for commodities always equals their aggregate supply, irrespective of the price ...
The Second End of Laissez-Faire
... if speculators on average sell when the [commodity] is low in price and buy when it is high.” (Friedman 1953: 175.) Destabilizing speculators would be irrational. They would have to pay for their irrationality and would sooner or later lose their money. The Darwinian mechanism kicks in, and the only ...
... if speculators on average sell when the [commodity] is low in price and buy when it is high.” (Friedman 1953: 175.) Destabilizing speculators would be irrational. They would have to pay for their irrationality and would sooner or later lose their money. The Darwinian mechanism kicks in, and the only ...
monetary policy introduction the money market the price of money
... The divergence of short-term and long-term interest rates suggest that banks and borrowers look beyond current economic conditions in making long term commitments. Rather than risking upsetting these long-term decisions, monetarists advocate steady and predictable changes in the money supply. ...
... The divergence of short-term and long-term interest rates suggest that banks and borrowers look beyond current economic conditions in making long term commitments. Rather than risking upsetting these long-term decisions, monetarists advocate steady and predictable changes in the money supply. ...
Determinacy and Indeterminacy of Equilibrium
... statics can be precisely described. Instead, when equilibria are indeterminate, even arbitrarily precise local bounds on variables might not suffice to give a unique equilibrium prediction, the model might exhibit infinitely many equilibria, and each might be infinitely sensitive to arbitrarily small ...
... statics can be precisely described. Instead, when equilibria are indeterminate, even arbitrarily precise local bounds on variables might not suffice to give a unique equilibrium prediction, the model might exhibit infinitely many equilibria, and each might be infinitely sensitive to arbitrarily small ...
Document
... • At some point, the economy reaches the constraint of resources and technology, causing the medium-run aggregate supply curve to become vertical. ...
... • At some point, the economy reaches the constraint of resources and technology, causing the medium-run aggregate supply curve to become vertical. ...
Objectives of the chapter - The Good, the Bad and the Economist
... demand in the economy will begin to rise. If businesses are close to full capacity they will find it difficult to produce the extra output to meet this demand. Therefore they are likely to respond by rising prices. In sectors where businesses find it almost impossible to produce more, and where the ...
... demand in the economy will begin to rise. If businesses are close to full capacity they will find it difficult to produce the extra output to meet this demand. Therefore they are likely to respond by rising prices. In sectors where businesses find it almost impossible to produce more, and where the ...
RETHINKING MACROECONOMICS: WHAT FAILED, AND HOW TO REPAIR IT Joseph E. Stiglitz
... Dixit–Stiglitz (1977) variety, and Cobb–Douglas production functions. In using them, we should be aware not only of their special nature, but that they have empirical predictions that can be (and typically are) refuted. For some purposes (such as the analysis of behavior towards risk), these utility ...
... Dixit–Stiglitz (1977) variety, and Cobb–Douglas production functions. In using them, we should be aware not only of their special nature, but that they have empirical predictions that can be (and typically are) refuted. For some purposes (such as the analysis of behavior towards risk), these utility ...
The IS*LM/AD*AS Model: A General Framework for Macroeconomic
... goods market and shift the IS curve. • An increase in G, financed by a tax increase, would do this but this is not the only source of a shift in the IS curve. • The resulting excess demand for goods and services at constant output can only be eliminated by changes in the real rate of interest. ...
... goods market and shift the IS curve. • An increase in G, financed by a tax increase, would do this but this is not the only source of a shift in the IS curve. • The resulting excess demand for goods and services at constant output can only be eliminated by changes in the real rate of interest. ...
Memoirs of a Would-be Macroeconomist
... impact on my own thinking, and such ideas will not be covered here. Organizing this intellectual history has been a challenge. There is a multi-dimensional matrix to be filled in. One dimension consists of different macroeconomic viewpoints. These tend to go by the pretentious term “models,” such as ...
... impact on my own thinking, and such ideas will not be covered here. Organizing this intellectual history has been a challenge. There is a multi-dimensional matrix to be filled in. One dimension consists of different macroeconomic viewpoints. These tend to go by the pretentious term “models,” such as ...
Economic Survey of Singapore 2008 Prices Box 4.1
... The role of expectations plays an important role in the persistence of deflation. Well-anchored inflation expectations make self-sustaining deflationary spirals less likely. If an adverse demand or supply shock unanchors inflation expectations and consumers expect future prices to decline, they woul ...
... The role of expectations plays an important role in the persistence of deflation. Well-anchored inflation expectations make self-sustaining deflationary spirals less likely. If an adverse demand or supply shock unanchors inflation expectations and consumers expect future prices to decline, they woul ...
Book Review_ After the Music Stopped - WSJ
... hard for borrower and lender to come to terms after the house's value fell. Finally, the creditrating agencies failed spectacularly to do their job. Had the three major firms that rate bonds— Standard & Poor's, Moody's and Fitch—assessed various mortgage-backed securities accurately, many bond buyer ...
... hard for borrower and lender to come to terms after the house's value fell. Finally, the creditrating agencies failed spectacularly to do their job. Had the three major firms that rate bonds— Standard & Poor's, Moody's and Fitch—assessed various mortgage-backed securities accurately, many bond buyer ...
Monetary Policy
... The Fed tries to keep both the unemployment and inflation rates low, but it can’t affect either of these economic variables directly. The Fed uses variables, called monetary policy targets, that it can affect directly and that, in turn, affect variables that are closely related to the Fed’s policy g ...
... The Fed tries to keep both the unemployment and inflation rates low, but it can’t affect either of these economic variables directly. The Fed uses variables, called monetary policy targets, that it can affect directly and that, in turn, affect variables that are closely related to the Fed’s policy g ...
Economic bubble
An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania or a balloon) is trade in an asset at a price or price range that strongly deviates from the corresponding asset's intrinsic value. It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future.Because it is often difficult to observe intrinsic values in real-life markets, bubbles are often conclusively identified only in retrospect, when a sudden drop in prices appears. Such a drop is known as a crash or a bubble burst. Both the boom and the burst phases of the bubble are examples of a positive feedback mechanism, in contrast to the negative feedback mechanism that determines the equilibrium price under normal market circumstances. Prices in an economic bubble can fluctuate erratically, and become impossible to predict from supply and demand alone.While some economists deny that bubbles occur, the cause of bubbles remains disputed by those who are convinced that asset prices often deviate strongly from intrinsic values. Many explanations have been suggested, and research has recently shown that bubbles may appear even without uncertainty, speculation, or bounded rationality. In such cases, the bubbles may be argued to be rational, where investors at every point fully compensated for the possibility that the bubble might collapse by higher returns. These approaches require that the timing of the bubble collapse can only be forecast probabilistically and the bubble process is often modelled using a Markov switching model. It has also been suggested that bubbles might ultimately be caused by processes of price coordination or emerging social norms.