Thursday, October 30, 2008

Reads of the day

Tod den Heuschrecken!

Zubin Jelveh goes over a recent paper that shows that not all the blame should go to the low interest rates for the jump in subprime lending. The results of the paper hint that securitization played a role as well. You can watch a video of one of the authors going over the paper.

Early in the week, Jeff Sachs advocated (among other measures) the Fed to extend swap lines to major EM, including Turkey. Yesterday, Brazil, Mexico, Singapore and Korea got exactly that. In the meantime, IMF has come with a new, sans conditions short-term lending facility for EM.

FOMC slashed the Fed funds rate 50bp to 1%, but a simple Taylor rule shows that the policy rate could well go down to zero by mid-2009.

The Financial crisis in perspective: Four quick lessons from Princeton University Press Economics books.

Yves Smith notes that financing difficulties may be obstructing trade. This is a valid explanation of the recent fall in the Baltic Dry Goods Index as well.

Another interesting one from Yves Smith: She argues that the capital plight from EM was exacerbated by prime brokers Goldman and Morgan curtailing lending to hedge funds, as the two faced tougher regulatory standards after becoming banks. I haven't looked for the actual numbers to prove or disprove her point, but the timing definitely fits.

A short history of central banking from Brad DeLong.

WSJ summarizes research on asset price bubbles, at Princeton by Bernanke protegees.

Another credit crunch multiplier: The good old money multiplier- yes, the one you've encountered in Intro. Macro.

If we were living in normal times, the steep yield curve would have meant strong growth in 2009. Here's another post on the yield curve, this one's on the famous Greenspan conundrum. And finally, decomposing the yield curve into interest rate expectations and term premium components yields (no pun intended) that it is interest rate expectations that predict recessions.

How neoclassical economists think about the crises. Their predictions on residential versus nonresidential investment have turned out to be true in the latest US GDP data.

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