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  Working Paper No. 553

  Insuring Against Private Capital Flows

  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 […]
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  Summary No. 1

  Summary Winter 2009

  Recent attempts by the Treasury and the Federal Reserve to counter the worst financial and economic crisis since the Great Depression have brought into question the role of the government and the effectiveness of its rescue package. Levy Institute scholars foresee an extended period of stagnation and possibly deflation if the government does not take […]
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  Working Paper No. 552

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

  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 […]
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  Working Paper No. 551

  Small Is Beautiful

  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 […]
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  Working Paper No. 550

  An Empirical Analysis of Gender Bias in Education Spending in Paraguay

  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 […]
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  Working Paper No. 549

  Excess Capital and Liquidity Management

  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 […]
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  Policy Notes No. 6

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

  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 […]
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  Working Paper No. 548

  On Democratizing Financial Turmoil

  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 […]
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  Policy Notes No. 5

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

  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 […]
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  Working Paper No. 547

  Minsky and Economic Policy

  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 […]
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  Working Paper No. 546

  Do the Innovations in a Monetary VAR Have Finite Variances?

  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 […]
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  Asia’s revenge

  October 8, 2008. Copyright 2008 The Financial Times Limited. “FT” and “Financial Times” are trademarks of the Financial Times. “Things that can’t go on forever, don’t.” —Herbert Stein, former chairman of the US presidential Council of Economic Advisers What confronts the world can be seen as the latest in a succession of financial crises that […]