When Credit Bites Back

Using data on 14 advanced countries between 1870 and 2008 we document two key facts of the modern business cycle: relative to typical recessions, financial crisis recessions are costlier, and more credit‐intensive expansions tend to be followed by deeper recessions (in financial crises or otherwise) and slower recoveries. We use local projection methods to condition on a broad set of macro‐economic controls to study how past credit accumulation impacts key macro‐economic variables such as output, investment, lending, interest rates, and inflation. The facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle.     

The Fall and Rise of Keynesian Economics*

Keynesian economics came under much criticism in the 1970s This paper argues that the decline in Keynesian economics and the rise in, notably, new classical economics in this period related to their respective theoretical appeal rather than their ability to explain developments in the macroeconomy. As this has become increasingly recognized, and with the development of sound microeconomic foundations, Keynesian economics has again been on the rise.     

The Australian Economy - Thatcherism after 7 Years?

In March 1983 Mr Malcolm Fraser's Liberal Coalition was defeated in the Australian general election. He had held office for over 7years. His Government's record on economic management can be briefly summarised as follows. At the end of 1975 when the Liberal Coalition took office the inflation rate was 14 per cent and the rate of unemployment was 5.4 per cent; in March 1983 the inflation rate was 11.5 per cent and the rate of unemployment was 10.4 per cent. It is generally thought that Mr Fraser's policies were not unlike those of Mrs Thatcher. Since he had been operating them for over seven years it is reasonable to ask why the outcome appears to have been so disappointing. In this Briefing Paper we examine recent developments in the Australian economy and make some comparisons of policies and outcomes in Australia and Britain, particularly during the past four years, when there were conservative Governments in both countries.     

Market Created Risk

We develop a multiperiod rational expectations model of securities market equilibrium in which equilibrium prices may move between periods even though it is common knowledge that no new information has arrived about ultimate security payoffs. This happens because investors know they have imperfect information about the endowments of other investors and this knowledge affects their probability beliefs about the prices that will prevail at the intermediate trading date. These beliefs are reflected in the equilibrium at the initial trading date when investors focus on the probabilities of intermediate capital gains and losses, rather than ultimate payoffs.     

The Stampede Toward Defined Contribution Pension Plans: Fact or Fiction?

This paper questions recent conclusions that the trend in primary plan type toward defined contribution plans and away from defined benefit plans is due to increased pension regulation. Analysis of data from IRS 5500 filings by pension administrators shows that at least half of the trend is due to a shift in employment mix toward firms with industry, size, and union status that have historically been associated with lower defined benefit plan rates. Not more than half of the trend can be attributed to a "stampede" by firms with given industry, size, and union status toward defined contribution pension coverage.