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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 […]
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  Public Policy Brief Highlight No. 96

  The Commodities Market Bubble

  In a new public policy brief, Senior Scholar L. Randall Wray shows how money manager capitalism—characterized by highly leveraged funds seeking maximum returns in an environment that systematically underprices risk—has destabilized one asset class after another, with commodities being simply the latest. Policymakers must fundamentally change the structure of our economic system and reduce the […]
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  Policy Notes No. 4

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

  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 […]
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  Report No. 4

  Report October 2008

  Recent experience has bolstered the view that asset prices must come under the central bank’s purview in order for the economy to retain some semblance of stability. However, in a new Public Policy Brief, Pedro Nicolaci da Costa argues that attitude changes among regulators will be even more important than shifts in mandate in ensuring […]
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  Public Policy Brief No. 96

  The Commodities Market Bubble

  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 […]
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  Working Paper No. 545

  Promoting Equality Through an Employment of Last Resort Policy

  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 […]
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  Working Paper No. 544

  Inflation Targeting in Brazil

  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” […]
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  Press Release

  Federal Government in Better Position Than Federal Reserve to Support Faltering Economy, Levy Scholar Says

   
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  Working Paper No. 543

  Macroeconomics Meets Hyman P. Minsky

  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 […]