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Working Paper
On the sustainability of international coordination
Journal Article
The Mexican economic crisis: alternative views
The authors of this article suggest that many of the explanations for the 1994 crisis are based on questionable assumptions and dubious analysis. They contend that, when trying to explain the crisis, most authors have concentrated on the wrong economic "fundamentals." They challenge the conventional view that the crisis was caused by a combination of flawed fiscal, monetary, and exchange rate policies. Their explanation for the crisis belongs in an alternative camp that emphasizes the vulnerability of the Mexican financial system to swings in expectations and investor confidence. ; In their ...
Journal Article
On business cycles and countercyclical policies
Since the third quarter of 2000, the U.S. economy began to experience a slowdown in its rate of growth. This slowdown serves as a reminder that the business cycle is still alive and raises the following questions: What do we know about the driving forces behind the business cycle? What should policymakers do in the face of economic fluctuations? ; The authors examine two explanations for business cycles that are well-known in academic circles: the animal spirits theory and the real business cycle theory. The former is closely connected with the Keynesian economic tradition and identifies ...
Journal Article
Are all monetary policy instruments created equal?
Working Paper
Debt maturity, risk, and asymmetric information
We test the implications of Flannery's (1986) and Diamond's (1991) models concerning the effects of risk and asymmetric information in determining debt maturity, and we examine the overall importance of informational asymmetries in debt maturity choices. We employ data on over 6,000 commercial loans from 53 large U.S. banks. Our results for low-risk firms are consistent with the predictions of both theoretical models, but our findings for high-risk firms conflict with the predictions of Diamond's model and with much of the empirical literature. Our findings also suggest a strong quantitative ...
Journal Article
History and theory of the NAIRU: a critical review
Economic commentators regularly urge the Fed to use the level of unemployment or the rate of change in wages as leading indicators of inflation and as guides to whether they should ease or tighten monetary policy. The logic behind this approach is based on modern (post-1970) Keynesian macroeconomics and, more specifically, on the Phillips curve and the nonaccelerating inflation rate of unemployment (NAIRU). This article attempts to provide some basic information about this NAIRU theory of the causes of inflation and the role of monetary policy. After describing the historical development of ...