Monthly Archives: March 2011

Excess Demand for Money, circa 1907

The first recorded currency premium — 3 percent — emerged on October 31. According to [Harvard economist A.P.] Andrew, “money brokers advertised regularly in the daily press the purchase and sale of currency.” A person wanting cash on October 31 had to present a certified check for $103 to acquire $100 in currency from a money broker. The premium reached a peak of 4 percent several times during the first half of December and then dwindled to less than 1 percent before disappearing December 31, 1907.

That is from William Silber’s When Washington Shut Down Wall Street.

Who Are ‘We’?

Olivier Blanchard offers a summary of things learned from a recent conference on the future of macroeconomics. I found this point puzzling:

The crisis made it clear that there are many distortions relevant for macroeconomics, many more than we thought earlier.

In particular, he cites agency theory and the role of finance. If this is what we have learned, who are ‘we’? The idea that credit market frictions play an important role in macroeconomic fluctuations and monetary policy has been widely recognized. The current Fed chairman, in fact, is a co-author of a widely cited paper on the role of the “financial accelerator” within a fairly New Keynesian framework. In fact, here is a list of influential papers (by no means exhaustive), the date of publication, the number of citations (according to Google Scholar), and the author(s):

— “The Financial Accelerator in a Quantitative Business Cycle Framework”, 1999, Citations: 1878 (Bernanke, Gertler, and Gilchrist)

— “Agency Costs, Net Worth, and Business Cycle Fluctuations: A Computable General Equilibrium Analysis”, 1997, Citations: 546 (Carlstrom and Fuerst)

— “Agency Costs, Net Worth, and Business Cycle Fluctuations”, 1989, Citations: 2224 (Bernanke)

— “Inside the Black Box: The Credit Channel of Monetary Policy Transmission”, 1995, Citations: 2004 (Bernanke and Gertler)

— “Optimal Contracts and Competitive Markets with Costly State Verification”, 1979, Citations: 1848 (Townsend)

— “Capital Market Imperfections and Investment”, 1997, Citations: 1661 (Hubbard)

— “The Financial Accelerator and the Flight to Quality”, 1994, Citations: 1034 (Bernanke and Gertler)

— “The Role of Credit Market Imperfections in the Monetary Transmission Mechanism: Arguments and Evidence”, 1993, Citations: 379 (Gertler and Gilchrist)

— “Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing”, 1986, Citations: 598 (Williamson)

— “Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing”, 1987, Citations: 392 (Williamson)

Ricardian Equivalence

There seems to be some confusion about Ricardian Equivalence floating around the blogosphere (see Nick Rowe’s attempt at mediation here). I’m a bit pressed for time, but in lieu of my own comments I would like to recommend a great survey by John Seater on Ricardian Equivalence that would seem useful for the present discussions about theoretical and empirical issues.

Precautionary Demand for Money?