Two new VOX EU pieces

Debt restructuring and the rules of engineering
Incentivves to avoid delayed default


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On Time Magazine

As UN economist Ugo Panizza, one of the authors of the study, explains:

“Our findings show that there can be “too much” finance. While [opponents of regulation like Alan] Greenspan argued that less credit may hurt our future standard of living, our results indicate that, in countries with very large financial sectors, regulatory policies that reduce the size of the financial sector may have a positive effect on economic growth.”

Read more: http://business.time.com/2012/09/04/bankers-who-needs-them/#ixzz25Vkofz2v

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Troppa Finanza?

Il nostro articolo "Too Much Finance?" e' uscito come IMF Working Paper ed e' stato notato in alcuni siti italiani:

Il Fatto Quotidiano (i commenti sono bellissimi)
Libero
L'Osservatore Romano (?)
Rinascita (che parte con una discussione su usurai, asini e vacche)
Il Cambiamento (con delle belle teorie sul complotto neoliberale)

La cosa interessante e' che la copertina del paper dice:

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Ma alcuni siti citano il nostro lavoro come "un rapporto del FMI" senza neanche fare il nome degli autori. Neanche l'Economist aveva fatto una cosa simile quando ha discusso il nostro paper sui costi del default.
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UN Development Guy

From the comments in Econbrowser:


Who are Panizza and Presbitero? I have never heard of either. Panizza is a UN development guy; Presbitero is junior faculty at an Italian university at a time when Italy's debt is very much an issue. These guys are not exactly Larry Summers, and they're proposing academic findings in the midst of a hot, and to Italy crticial, debate on stimulus spending. 


The rest is: here

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Good quotes from Bertrand Russell

• The most savage controversies are those about matters as to which there is no good evidence either way.
• A stupid man's report of what a clever man says can never be accurate, because he unconsciously translates what he hears into something he can understand.
• Do not fear to be eccentric in opinion, for every opinion now accepted was once eccentric.
• Everything is vague to a degree you do not realize till you have tried to make it precise.
• I think we ought always to entertain our opinions with some measure of doubt. I shouldn't wish people dogmatically to believe any philosophy, not even mine.
• I would never die for my beliefs because I might be wrong.
• If a man is offered a fact which goes against his instincts, he will scrutinize it closely, and unless the evidence is overwhelming, he will refuse to believe it. If, on the other hand, he is offered something which affords a reason for acting in accordance to his instincts, he will accept it even on the slightest evidence. The origin of myths is explained in this way.
• In all affairs it's a healthy thing now and then to hang a question mark on the things you have long taken for granted.
• In the part of this universe that we know there is great injustice, and often the good suffer, and often the wicked prosper, and one hardly knows which of those is the more annoying.
• Passive acceptance of the teacher's wisdom is easy to most boys and girls. It involves no effort of independent thought, and seems rational because the teacher knows more than his pupils; it is moreover the way to win the favour of the teacher unless he is a very exceptional man. Yet the habit of passive acceptance is a disastrous one in later life. It causes man to seek and to accept a leader, and to accept as a leader whoever is established in that position.
• Science may set limits to knowledge, but should not set limits to imagination.
• So far as I can remember, there is not one word in the Gospels in praise of intelligence.
• The greatest challenge to any thinker is stating the problem in a way that will allow a solution.
• The people who are regarded as moral luminaries are those who forego ordinary pleasures themselves and find compensation in interfering with the pleasures of others. 

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Our public debt and growth paper on VOX

Countries with high public debt tend to grow slowly – a correlation often used to justify austerity. This column presents new evidence challenging this view. The authors point out that correlation does not imply causality – it may be that slow growth causes high debt. They argue that policymakers should be wary – the case for cutting debt to boost growth still needs to be made. The rest is here

Is public debt bad for growth?

Not really.

This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we instrument debt with a variable that captures valuation effects brought about by the interaction between foreign currency debt and exchange rate volatility. We conduct a battery of robustness tests and show that our results are not affected by weak instrument problems and are robust to relaxing our exclusion restriction.

The paper is here


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Italy and original sin

Krugman on our original sin paper


http://krugman.blogs.nytimes.com/2011/11/10/original-sin-and-the-euro-crisis/



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Chinese Perfume Brands

I took this picture in a shopping mall in Wuhan (Hubei Province, China)

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When Financial Sectors Become “Too Large”

At the end of July Alan Greenspan published an Op Ed arguing that tighter financial regulation and capital standards will lead to the accumulation of “idle resources that are not otherwise engaged in the production of goods and services” and are instead devoted “to fending off once-in-50 or 100-year crises” resulting in an “excess of buffers at the expense of our standards of living.”...

....While former Chairman Greenspan implicitly assumed that stricter regulation will have a negative effect on financial intermediation and depress future GDP growth, our results suggest that there are many countries for which tighter credit standards could actually increase growth.

The rest on EconoMonitor
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Lebanese Innovations

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11 luglio CORIPE day

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100 trillion dollars (Zimbabwe)

These bills are worth more as a souvenir (5 USD) than when they were legal tender. Below are 10 and 5 billions.

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:)

But the best recent paper I have come across on the subject is from October 2008, just after Lehman Brothers collapsed, and was written by Eduardo Borensztein and Ugo Panizza....

The rest is here

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I think that the IMF women are right..

the NYT piece was a bit pathetic, good job Taline et al.

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Too much finance?

This paper examines whether there is a threshold above which financial development no longer has a positive effect on economic growth. We develop a simple model in which the expectation of a bailout may lead to a financial sector which is too large with respect to the social optimum. We then use different empirical approaches to show that there can indeed be “too much” finance. In particular, our results suggest that finance starts having a negative effect on output growth when credit to the private sector reaches 110 percent of GDP. We conclude by showing that the size of the financial sector was a significant amplifying factor in the global crisis that followed the collapse of Lehman Brothers in September 2008.

The vox.eu article about it is here

The paper is here

An older version of the paper is  here

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The Fund about the Fund

Here is the report by the IEO, one of tha main authors is my friend Angana

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Housing prices in Geneva are still going up

For what is worth, the Switzerland and Geneva series appear to be cointegrated.
Such a long-run relationhsip suggests that either rest of Switzerland prices need to increase a lot or that Geneva prices need to go down (or both).
If I were a hedge fund, I would be short on Geneva and long on the rest of Switzerland.
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Keynes on exams

The results of his civil service exams infuriate Keynes. He writes to Strachey:

"I have done worst in the only two subjects of which I possessed a solid knowledge - Mathematics and Economics. I scored more marks for English History than for Mathematics - is it credible? For Economics I got a relatively low percentage and was eight or ninth in order of merit..."

He was later to say: "I evidently knew more about Economics than my examiners."

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Super sad true love story

I just finished reading the book. It's very funny, at the end the IMF starts running the US economy with the support of China, Norway, and Saudi Arabia; somebody manages to get a visa to Canada because she has a degree in econometrics. Here's a video
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Another reason to buy an iphone

here

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How to quit a job

Yesterday morning, Jenny quit her job with a (flash)bang by emailing these photos to the entire office. Awesome doesn't begin to describe this office heroine.....

the rest is here

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Sign the petition!

http://freesakineh.org/
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Who are the cheaters

Bankers

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Management and personal life

Nice HBR piece by Clayton Christensen
Here


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