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Policy Notes No. 1
January 22, 2009
Obama’s Job Creation Promise
AbstractJob 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 […]
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Strategic Analysis
January 06, 2009
Flow of Funds Figures Show the Largest Drop in Household Borrowing in the Last 40 Years
AbstractThe 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 […]
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Strategic Analysis
December 24, 2008
Prospects for the United States and the World: A Crisis That Conventional Remedies Cannot Resolve
AbstractThe 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, […]
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Working Paper No. 553
December 22, 2008
Insuring Against Private Capital Flows
AbstractFollowing 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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Working Paper No. 552
December 16, 2008
Hypothetical Integration in a Social Accounting Matrix and Fixed-price Multiplier Analysis
AbstractThis 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
December 02, 2008
Small Is Beautiful
AbstractThis 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
November 20, 2008
An Empirical Analysis of Gender Bias in Education Spending in Paraguay
AbstractGender 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
November 14, 2008
Excess Capital and Liquidity Management
AbstractThese 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
November 11, 2008
Time to Bail Out: Alternatives to the Bush-Paulson Plan
AbstractWhile 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
November 10, 2008
On Democratizing Financial Turmoil
AbstractThe 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
October 24, 2008
Will the Paulson Bailout Produce the Basis for Another Minsky Moment?
AbstractAs 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
October 23, 2008
Minsky and Economic Policy
AbstractRecently, 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
October 20, 2008
Do the Innovations in a Monetary VAR Have Finite Variances?
AbstractSince 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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Policy Notes No. 4
October 08, 2008
A Simple Proposal to Resolve the Disruption of Counterparty Risk in Short-Term Credit Markets
AbstractThe 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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Public Policy Brief No. 96
October 08, 2008
The Commodities Market Bubble
AbstractMoney 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
October 07, 2008
Promoting Equality Through an Employment of Last Resort Policy
AbstractUnemployment 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
September 29, 2008
Inflation Targeting in Brazil
AbstractThe 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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Working Paper No. 543
September 01, 2008
Macroeconomics Meets Hyman P. Minsky
AbstractExpanding 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 […]
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Public Policy Brief No. 95
August 29, 2008
Shaky Foundations: Policy Lessons from America’s Historic Housing Crash
AbstractA 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" […]
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Policy Notes
August 25, 2008
What’s a Central Bank to Do?
AbstractAs 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 […]
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Policy Notes No. 3
August 25, 2008
What’s a Central Bank to Do?
AbstractAs 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 […]
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Working Paper No. 542
August 07, 2008
Keynes’s Approach to Full Employment
AbstractThis 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 […]
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Working Paper No. 541
July 23, 2008
The Unpaid Care Work–Paid Work Connection
AbstractIn order to provide a coherent perspective of gender differences in the world of work, the many intersections of paid and unpaid work must be brought to light. It is well documented that gender-based wage differentials and occupational segregation continue to characterize the division of labor among men and women in paid work; yet unpaid […]
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Working Paper No. 540
July 22, 2008
The Effects of International Trade on Gender Inequality
AbstractThe process of economic globalization has winners and losers. Iran’s carpet industry provides a good illustration of the adverse side of this process. As the production costs of its rivals have fallen, surging international trade has reduced the market share of Iran’s labor-intensive products, especially Persian carpets. This paper reports the findings of an informal […]
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