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194 publications found, searching for 'Financial Instability '
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Working Paper No. 1075
January 23, 2025
The High Cost of the Strong Peso and Its Temporary Nature: The Case of Mexico
AbstractThe article analyzes why exchange rate stability has been prioritized in Mexico and why the national currency has appreciated; which policies and factors have made this possible, the costs and consequences of the strong peso, and its sustainability and temporality are also examined. Mexico’s economy does not have the endogenous conditions necessary to maintain such […]
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Working Paper No. 1071
December 10, 2024
Tilting at Windmills
AbstractOriginally issued as EDI Working Paper No. 14, May 2023 The Central Bank of the United States, the Federal Reserve, has a dual mandate to maintain both full employment and price stability. However, inflation-fighting had always eclipsed the full employment objective without much accountability. Today, the Federal Reserve provides regular testimony before Congress on how […]
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Working Paper No. 1066
December 06, 2024
Job Guarantee Program and the Kaleckian Dilemma
AbstractOriginally issued as EDI Working Paper No. 10, November 2023 Minsky (1965) has presented the Job Guarantee program as a recommendation in the war against unemployment and poverty. Kalecki (1943), on the other hand, argued that the full employment situation could be technically feasible but politically hard to implement due to the class struggle, resulting […]
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Working Paper No. 1064
December 06, 2024
Seismic Shifts in Economic Theory and Policy from the Bernanke Doctrine to Modern Money Theory
AbstractOriginally issued as EDI Working Paper No. 08, 2022 This paper evaluates the relationship between monetary and fiscal policy and the relative effectiveness of macroeconomic stabilization through the lens of Modern Money Theory (MMT). We articulate previously-neglected aspects of monetary sovereignty to offer a new interpretation of the Bernanke Doctrine that emerged in the wake of […]
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Working Paper No. 1062
December 03, 2024
The Value of Money
AbstractThis paper examines heterodox theories of the determinants of the value of money. Orthodox approaches that tie money’s value to relative scarcity of money or to the price level are rejected as inconsistent with the monetary theory of production embraced by heterodox traditions linked to Marx, Veblen, and Keynes. This paper examines and integrates (1) […]
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Strategic Analysis
June 04, 2024
U.S. Economic Outlook: Prospects for 2024 and Beyond
AbstractIn this report, Institute President Dimitri B. Papadimitriou, Research Scholar Giuliano T. Yajima, and Senior Scholar Gennaro Zezza discuss the rapid recovery of the US economy in the post-pandemic period. They find that robust consumption and investment and a relaxation of fiscal policy were the key drivers of accelerated GDP growth—however, the signs that the […]
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Working Paper No. 1021
June 29, 2023
Can It Be Prevented This Time?
AbstractSince the nineties, crises have punctuated financial markets, shattering the conventional wisdom about how these markets work and how to regulate them, and forcing a deep rethinking of the supervisory framework that, however, did not change much of the banks’ behavior and incentives. In particular, banking regulation did not face the nexus profitability-riskiness. Based on […]
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One-Pager No. 66
April 01, 2021
Anatomy of a Stock Market Bubble
AbstractAccording to Frank Veneroso, a broad subset of today’s US stock market has become what he calls a “pure price-chasing bubble.” Examination of the history of comparable pure price-chasing bubbles shows there has been a set of key causal factors that contributed to these rare market events. The most extreme such case was an over-the-counter […]
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Working Paper No. 987
March 22, 2021
The Souk Al-Manakh
AbstractIt is widely agreed that the Nasdaq during the dot-com era 20 years ago was a full-fledged stock market bubble. Recently, the US stock market according to many metrics has become significantly more speculative and overvalued than it was at the dot-com peak 20 years ago. In both instances, a very broad subset of stocks […]
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Working Paper No. 986
March 10, 2021
Keynes’s Theories of the Business Cycle
AbstractThis paper traces the evolution of John Maynard Keynes’s theory of the business cycle from his early writings in 1913 to his policy prescriptions for the control of fluctuations in the early 1940s. The paper identifies six different “theories” of business fluctuations. With different theoretical frameworks in a 30-year span, the driver of fluctuations—namely cyclical […]
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Working Paper No. 974
October 05, 2020
The General Theory as “Depression Economics”?
AbstractThis paper revisits Keynes’s writings from Indian Currency and Finance (1913) to The General Theory (1936) with a focus on financial instability. The analysis reveals Keynes’s astute concerns about the stability/fragility of the banking system, especially under deflationary conditions. Keynes’s writings during the Great Depression uncover insights into how the Great Depression may have informed […]
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Working Paper No. 972
September 30, 2020
In the Long Run We Are All Herd
AbstractSince the 2008 crisis, the economics literature has shown a renewed interest in Keynes’s “beauty contest” (BC) as a fundamental aspect of the functioning of financial markets. We argue that to understand the importance of the BC, psychological and informational factors are of small importance, and a dynamic-structural approach should be followed instead: the BC […]
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Working Paper No. 971
September 28, 2020
Ecology, Economics, and Network Dynamics
AbstractIn a seminal 1972 paper, Robert M. May asked: “Will a Large Complex System Be Stable?” and argued that stability (of a broad class of random linear systems) decreases with increasing complexity, sparking a revolution in our understanding of ecosystem dynamics. Twenty-five years later, May, Levin, and Sugihara translated our understanding of the dynamics of […]
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Working Paper No. 968
September 14, 2020
The COVID-19 Crisis
AbstractThe COVID-19 crisis paralyzed huge parts of the planet in weeks. It not only infected the population but injected a gargantuan dose of uncertainty into the system. In that regard, as in many others, it is a phenomenon without precedent. As of the time of writing (May–June 2020), we are witnessing, simultaneously, a health crisis, […]
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Public Policy Brief No. 150
June 03, 2020
The Impact of Technological Innovations on Money and Financial Markets
AbstractAccording to Senior Scholar Jan Kregel and Paolo Savona, attempting to maintain the status quo in the face of the introduction of some recent technological innovations—chiefly cryptocurrencies and associated instruments based on distributed ledger technology, the deployment of artificial intelligence, and the use of data science in financial markets—will create risks that increase instability and […]
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Policy Notes No. 1
March 19, 2020
When Two Minskyan Processes Meet a Large Shock
AbstractThe spread of the new coronavirus (COVID-19) is a major shock for the US and global economies. Research Scholar Michalis Nikiforos explains that we cannot fully understand the economic implications of the pandemic without reference to two Minskyan processes at play in the US economy: the growing divergence of stock market prices from output prices, […]
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Working Paper No. 947
February 06, 2020
Ages of Financial Instability
AbstractStarting from the mid-nineteenth century, this paper analyzes two periods of financial instability connected with financial globalization. The first culminates with the 1929 crisis, while the second characterizes the more recent experience starting from the 1970s. The period in between is divided into two subperiods. The first goes up to World War II and sees […]
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Working Paper No. 933
July 08, 2019
Defaultnomics
AbstractThe 2008 crisis created a need to rethink many aspects of economic theory, including the role of public intervention in the economy. On this issue, we explore the Barro-Ricardo equivalence, which has played a decisive role in molding the economic policies that fostered the crisis. We analyze the equivalence and its theoretical underpinnings, concluding that: […]
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Policy Notes No. 5
November 29, 2018
Preventing the Last Crisis
AbstractTen years after the fall of Lehman Brothers and the collapse of the US financial system, most commentaries remain overly focused on the proximate causes of the last crisis and the regulations put in place to prevent a repetition. According to Director of Research Jan Kregel, there is a broader set of lessons, which can […]
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Working Paper No. 916
October 02, 2018
Unconventional Monetary Policies and Central Bank Profits
AbstractThis study investigates the evolution of central bank profits as fiscal revenue (or: seigniorage) before and in the aftermath of the global financial crisis of 2008–9, focusing on a select group of central banks—namely the Bank of England, the United States Federal Reserve System, the Bank of Japan, the Swiss National Bank, the European Central […]
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Working Paper No. 909
July 02, 2018
External Instability in Transition
AbstractThis inquiry argues that the successful completion of the transition process in the post-Soviet economies is constrained by the prevailing social structure and low levels of technological progress, both of which require institutional reforms aimed at increasing growth in national income, productivity, and the degree of export competitiveness. Domestic policy implementation has not shown significant […]
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Working Paper No. 904
May 01, 2018
Corporate Debt in Latin America and its Macroeconomic Implications
AbstractThis paper provides an empirical analysis of nonfinancial corporate debt in six large Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, and Peru), distinguishing between bond-issuing and non-bond-issuing firms, and assessing the debt’s macroeconomic implications. The paper uses a sample of 2,241 firms listed on the stock markets of their respective countries, comprising 34 sectors […]
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Working Paper No. 903
April 16, 2018
The Economics of Instability
AbstractThe dominant postwar tradition in economics assumes the utility maximization of economic agents drives markets toward stable equilibrium positions. In such a world there should be no endogenous asset bubbles and untenable levels of private indebtedness. But there are. There is a competing alternative view that assumes an endogenous behavioral propensity for markets to embark on […]
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Strategic Analysis
April 13, 2018
“America First,” Fiscal Policy, and Financial Stability
AbstractThe US economy has been expanding continuously for almost nine years, making the current recovery the second longest in postwar history. However, the current recovery is also the slowest recovery of the postwar period. This Strategic Analysis presents the medium-run prospects, challenges, and contradictions for the US economy using the Levy Institute’s stock-flow consistent macroeconometric […]
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