Publications

1686 publications found

• Working Paper January 27, 2009

  Financial Stability: The Significance and Distinctiveness of Islamic Banking in Malaysia

  Abstract

  This paper explores the significance of Islamic banking in Malaysia for stability in the country’s economy as a whole. Neither conventional theory nor Islamic economics puts forward a systematic explanation of financial intermediation; consequently, neither is capable of identifying destabilizing elements in the system. Instead, a flow-of-funds approach similar to Minsky’s own is applied to […]

• Working Paper January 26, 2009

  Macroeconomic Imbalances in the United States and Their Impact on the International Financial System

  Abstract

  The argument put forward in this paper is twofold. First, the financial crisis of 2007–08 was made global by the current account deficit in the United States; and second, there is global dependence on the United States trade deficit as a means of maintaining liquidity in financial markets. The outflow of dollars from the United […]

• Policy Notes January 22, 2009

  Obama’s Job Creation Promise

  Abstract

  Job creation is once again at the forefront of policy action, and for advocates of pro-employment policies, President Obama’s Keynesian bent is a most welcome change. However, there are concerns that Obama’s plan simply does not go far enough, and that a large-scale public investment program may face shortages of skilled labor, put upward pressure […]

• Strategic Analysis January 06, 2009

  Flow of Funds Figures Show the Largest Drop in Household Borrowing in the Last 40 Years

  Abstract

  The Federal Reserve’s latest flow-of-funds data reveal that household borrowing has fallen sharply lower, bringing about a reversal of the upward trend in household debt. According to the Levy Institute’s macro model, a fall in borrowing has an immediate effect—accounting in this case for most of the 3 percent drop in private expenditure that occurred […]

• Strategic Analysis December 24, 2008

  Prospects for the United States and the World: A Crisis That Conventional Remedies Cannot Resolve

  Abstract

  The economic recovery plans currently under consideration by the United States and many other countries seem to be concentrated on the possibility of using expansionary fiscal and monetary policies alone. In a new Strategic Analysis, the Levy Institute’s Macro-Modeling Team argues that, however well coordinated, this approach will not be sufficient; what’s required, they say, […]

• Working Paper December 22, 2008

  Insuring Against Private Capital Flows

  Abstract

  Following an analysis of the forces behind the “global capital flows paradox” observed in the era of advancing financial globalization, this paper sets out to investigate the opportunity costs of self-insurance through precautionary reserve holdings. We reject the idea of reserves as low-cost protection against the vagaries of global finance. We also deny that arrangements […]

• Working Paper December 16, 2008

  Hypothetical Integration in a Social Accounting Matrix and Fixed-price Multiplier Analysis

  Abstract

  This study proposes a simple modification to a Social Accounting Matrix (SAM) in order to analyze the multiplier effects of a new sector. A different input composition, or technology, of the sector makes a conventional analysis of final-demand injections on existing sectors invalid. Author Kijong Kim shows that the modification—so-called hypothetical integration—is an efficient way […]

• Working Paper December 02, 2008

  Small Is Beautiful

  Abstract

  This paper examines the relationship between farm size and yield per acre in Turkey using heretofore untapped data from a 2002 farm-level survey of 5,003 rural households. After controlling for village, household, and agroclimatic heterogeneity, a strong inverse relationship between farm size and yield is found to be prevalent in all regions of Turkey. The […]

• Working Paper November 20, 2008

  An Empirical Analysis of Gender Bias in Education Spending in Paraguay

  Abstract

  Gender affects household spending in two areas that have been widely studied in the literature. One strand documents that greater female bargaining power within households results in a variety of shifts in household production and consumption. An important source of intrahousehold bargaining power is ownership of assets, especially land. Another strand examines gender bias in […]

• Working Paper November 14, 2008

  Excess Capital and Liquidity Management

  Abstract

  These notes present a new approach to corporate finance, one in which financing is not determined by prospective income streams but by financing opportunities, liquidity considerations, and prospective capital gains. This approach substantially modifies the traditional view of high interest rates as a discouragement to speculation; the Keynesian and Post-Keynesian theory of liquidity preference as […]

• Policy Notes November 11, 2008

  Time to Bail Out: Alternatives to the Bush-Paulson Plan

  Abstract

  While serving as chairman of the Federal Reserve Board, Alan Greenspan advocated unsupervised securitization, subprime lending, option ARMs, credit-default swaps, and all manner of financial alchemy in the belief that markets “work” to reduce and spread risk, and to allocate it to those best able to assess and bear it—in his view, markets would stabilize […]

• Working Paper November 10, 2008

  On Democratizing Financial Turmoil

  Abstract

  The paper uses Minsky’s financial instability hypothesis as an analytical framework for understanding the subprime mortgage crisis and for introducing adequate reforms to restore economic stability. We argue that the subprime crisis has structural origins that extend far beyond the housing and financial markets. We further argue that rising inequality since the 1980s formed the […]

• Policy Notes October 24, 2008

  Will the Paulson Bailout Produce the Basis for Another Minsky Moment?

  Abstract

  As the House Committee on Financial Services meets to hear the expert testimony of witnesses concerning the regulation of the financial system, the measures that have been introduced to support the system are laying the groundwork for a new domestic financial architecture. Hyman Minsky suggests that the basic principle behind any reformulation of the regulatory […]

• Working Paper October 23, 2008

  Minsky and Economic Policy

  Abstract

  Recently, national newspapers all over the world have suggested that we should reread John Maynard Keynes, and that Hyman P. Minsky provides a valuable framework for understanding the world in which we live. While rereading Keynes and discovering Minsky are noble goals, one should also remember the mistakes that were made in the past. The […]

• Working Paper October 20, 2008

  Do the Innovations in a Monetary VAR Have Finite Variances?

  Abstract

  Since Christopher Sims’s “Macroeconomics and Reality” (1980), macroeconomists have used structural VARs, or vector autoregressions, for policy analysis. Constructing the impulse-response functions and variance decompositions that are central to this literature requires factoring the variance-covariance matrix of innovations from the VAR. This paper presents evidence consistent with the hypothesis that at least some elements of […]

• Policy Notes October 08, 2008

  A Simple Proposal to Resolve the Disruption of Counterparty Risk in Short-Term Credit Markets

  Abstract

  The impaired risk assessment caused by the collapse of mortgage-backed securities is the major problem threatening the stability of the American financial system, yet it is not clear that removing these assets from institutional balance sheets, as the government has proposed, will make it easier to assess counterparty risk in short-term credit markets. Resolving the […]

• Public Policy Brief October 08, 2008

  The Commodities Market Bubble

  Abstract

  Money manager capitalism—characterized by highly leveraged funds seeking maximum returns in an environment that systematically underprices risk—has resulted in a series of boom-and-bust cycles in equities, real estate, and commodities. Because subsequent cycles have been increasingly damaging to the broader economy, we are now at the point where we are experiencing the most severe financial […]

• Working Paper October 07, 2008

  Promoting Equality Through an Employment of Last Resort Policy

  Abstract

  Unemployment has far-reaching effects, all leading to an inequitable distribution of well-being. To put an economy on an equitable growth path, economic development must be based on social efficiency, equity—and job creation. Many economists, however, assume that unemployment tends toward a natural rate below which it cannot go without creating inflation. This paper considers a […]

• Working Paper September 29, 2008

  Inflation Targeting in Brazil

  Abstract

  The monetary policy regime of inflation targeting (IT) has been adopted by a significant number of emerging economies. While the focus of this paper is on Brazil, which began inflation targeting in 1999, the authors also examine the experience of other countries, both for comparative purposes and for evidence of the extent of this “new” […]

• Working Paper September 01, 2008

  Macroeconomics Meets Hyman P. Minsky

  Abstract

  Expanding on an approach developed by financial economist Hyman Minsky, the authors present an alternative to the standard “efficient markets hypothesis”—the relevance of which Minsky vehemently denied. Minsky recognized that, in a modern capitalist economy with complex, expensive, and long-lived assets, the method used to finance asset positions is of critical importance, both for theory […]

• Public Policy Brief August 29, 2008

  Shaky Foundations: Policy Lessons from America’s Historic Housing Crash

  Abstract

  A bursting asset bubble inevitably requires central bank action, usually when it is already too late and with adverse spillover effects. In this sense, the Federal Reserve and other central banks already target asset prices; yet, by taking aim at them only on the way down—as in the current housing and credit crisis—the "Big Banks" […]

• Policy Notes August 25, 2008

  What’s a Central Bank to Do?

  Abstract

  As homeowner equity continues to disappear, there is a growing consensus that losses on all mortgages will exceed $1 trillion, with financial losses spreading far beyond real estate. Mortgage rates are spiking, and, more generally, interest rate spreads remain wide, as financial players shun private debt in the rush to safe Treasury securities. Labor markets […]

• Policy Notes August 25, 2008

  What’s a Central Bank to Do?

  Abstract

  As homeowner equity continues to disappear, there is a growing consensus that losses on all mortgages will exceed $1 trillion, with financial losses spreading far beyond real estate. Mortgage rates are spiking and, more generally, interest rate spreads remain wide, as financial players shun private debt in the rush to safe Treasury securities. Labor markets […]

• Working Paper August 07, 2008

  Keynes’s Approach to Full Employment

  Abstract

  This paper argues that John Maynard Keynes had a targeted (as contrasted with aggregate) demand approach to full employment. Modern policies, which aim to “close the demand gap,” are inconsistent with the Keynesian approach on both theoretical and methodological grounds. Aggregate demand tends to increase inflation and erode income distribution near full employment, which is […]