The problem in Cyprus is the banking sector. To get this, you just need to look at the balance sheet of a bank, as above. Cyprus banks saw the value of their assets fall in several categories above. They were exposed to mortgages in Cyprus itself (in other words: they were mortgage lenders), which has seen […]
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Stylised ‘facts’
Probably for anyone with an expertise not shared widely, there are frustrations about what people seem to “know” about your field. I’ll be less oblique:People seem to “know” that one of the causes of the Great Depression (globally) was competitive devaluation (a.k.a. “beggar-thy-neighbour” policy). It wasn’t. But let me back up and re-tell the story that […]
To grow or not to grow, (East Asia crisis versus Eurozone crisis)
A friend recently mused that, if the euroarea periphery were not in a single currency area, the crisis we’ve seen so far would look a lot more like the 1997-98 East Asia crisis. Greece would have ‘fallen’, and contagion would have knocked down the remaining ‘weak’ countries. Bear in mind the endogeneity of such contagion: […]
Cyprus
Plenty of good commentary out there. See here and here especially. Cyprus’ EU partners are saying: “Not me — we didn’t insist on a haircut for small depositors.” So Nicosia wanted to protect its position as a banking centre. This is less permissible in view of the fact that it has simultaneously agreed to shrink its banking […]
Pushing back against the “Can’t solve debt with more debt!” argument
Referring to the argument that, Hey, we have a problem of too much debt. You can’t solve it by adding more debt. See Krugman versus the UK government on BBC Newsnight for a recent example (go to 39:00). 1. Reject the premise — that our problem is “too much debt”. Our problem is not too much debt […]
Un-learning the lessons of Great Depression (ad-infinitum)
This blog is full of lessons-unlearned since the Great Depression. Why so? Because, fortunately or not, I’ve spent a portion of the last several years working on the Great Depression from a monetary and policy perspective. One of the interesting things about that period is the soul-searching it occasioned. This soul-searching is a good place to […]
Abenomics
Abenomics (noun): The use of macro policy to stimulate the economy. See also “Keynesianism”. Japan’s newfound enthusiasm for macro policy is going to provide a helluva interesting real-life test of the competing notions over whether OECD governments are doing too much or too little to tackle anaemic growth rates. My guess is that the austerians will have […]
A macroeconomic union
The euro’s main political effect is to drive a wedge through the EU, something not yet fully understood by the bloc’s policy establishment. The vast majority of insiders still treat it as a regulatory organisation at its heart, rather than as a macroeconomic union.Wolfgang Münchau in today’s FTProps to Münchau for putting so succinctly a sentiment I’ve […]
Pathways out of the euro-zone crisis
Lecture presented to the Georgetown University Graduate Program in International Management (Oxford, August 2012).Slides (pdf)Audio (mp3)Audio TOC:0:00 Introduction, Plan of the talk1:00 Real exchange rate4:10 Purchasing Power Parity6:05 East Asia crisis10:37 Hong Kong is the exception14:20 Financial globalization16:45 Internal devaluation in Argentina20:00 Greece23:10 Pathways out of the crisis25:10 De-globalization in Europe?26:41 Monetary trilemma28:38 History Lesson: […]
Crisis devaluations
Still thinking about a euro-area breakup. The question for this project is: For a given current account deficit and prior real appreciation, how big is the devaluation?The dataset contain 36 devaluation episodes, all of which featured a minimum 15% nominal depreciation over six months less-than-fully offset by inflation (i.e. a real depreciation). They are all […]