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Journal Article
In brief: high foreign real interest rates and investment in the 1990s
This article argues that high interest rates abroad have substantially depressed private investment in most foreign members of the Group of Seven during the 1990s. Business investment has been especially hard hit and housing construction disrupted, although the effect on housing has been offset in some countries by stimulative fiscal policies. The author estimates that overall, high interest rates have reduced output in the foreign G-7 by 2 1/2 to 4 1/4 percent per year on average over 1990-93.
Journal Article
Rapidly rising corporate debt: are firms now vulnerable to an economic slowdown?
The buildup of debt in the late 1990s has raised concerns about the U.S. nonfinancial corporate sector's health and its vulnerability to economic downturns. An analysis of the sector suggests that while small firms are experiencing some weakness, corporations as a group are in good financial shape.
Report
Asset market hangovers and economic growth: U.S. housing markets
This paper presents evidence that speculative bubbles can have sizeable effects on house prices, and on housing investment. We infer that deviations of asset prices from fundamental values may have serious consequences for real activity, and explore some policy implications. The analysis relies on a panel of U.S. state-level data covering 1973-1996.
Report
Asset market hangovers and economic growth
During the early 1990s, asset prices and investment were unusually weak throughout the industrial world. This paper highlights this stylized fact, and connects it with another: in most of the industrial world, asset markets boomed for several years before collapsing around 1989. The paper suggests that the sluggish asset markets and investment growth of the early 1990s may represent, in part, symptoms of an "asset market hangover," that is, the lingering effects on real activity of collapsing speculative bubbles. The analysis relies on cross-country data for equity and real estate markets ...
Monograph
The credit slowdown abroad
Journal Article
Introduction
This volume of the Economic Policy Review, "Special issue on the economic effects of September 11," explores some of the key economic consequences of the attacks of September 11. The six articles that make up the volume address several important questions: how great were the losses in New York City on September 11 and in the difficult months thereafter? How much will the nation spend to prevent future attacks? Did the destruction of information and infrastructure impair the functioning of the payments and securities settlement systems, and what steps minimize further damage? Will these ...
Report
Stop-loss orders and price cascades in currency markets
In this paper, I provide evidence that currency stop-loss orders contribute to rapid, self-reinforcing price movements, or "price cascades." Stop-loss orders, which instruct a dealer to buy (sell) a certain amount of currency at the market rate once the rate has risen (fallen) to a prespecified level, generate positive-feedback trading. Theoretical research on the 1987 stock market crash suggests that such trading can cause price discontinuities, which would manifest themselves as price cascades. ; My analysis of high-frequency exchange rates offers three main results that provide ...
Report
Rational speculators and exchange rate volatility
This paper examines whether rational, fully informed speculators will smooth exchange rates. Friedman's (1953) claim that they must do so is challenged, based on the exclusion of interest rate differentials from his interpretation of speculator behavior. Once one recognizes that interest rates matter to speculators, it becomes apparent that rational speculators could sometimes violate Friedman's description of their behavior, and buy currency when its value is relatively high or sell currency when its value is low. For this reason the presence of rational, fully informed speculators may ...