Kelly Evans, WSJ blog: The recession might be over, but how goes the recovery? We posed that question to two prominent Wall Street economists with two very different views of 2010. Bruce Kasman, chief economist at J.P. Morgan, sees the U.S. growing at about a 3.5% pace for most of next year. That appears optimistic compared to Jan Hatzius, chief economist at Goldman Sachs, who sees gross domestic product growth of 2% or so at the start of the year tapering off to just 1.5% by year-end.
Stephen Cecchetti et al, VoxEU: Financial crises are different! Reinhart and Rogoff have drawn lessons from previous financial crises to predict the dismal fallout from the current crisis. We analyse 40 systemic banking crises in 35 countries and find substantial variation. This financial crises stands out. But the variation in past experiences suggests that the major economies may regain their pre-crisis levels of output by the second half of 2010.
Paul Krugman, NYT blog: Adjustment and the dollar: To narrow international imbalances, we need a lower relative price of US output. Because prices are sticky, by far the easiest way to get there is dollar depreciation.
Joseph Stiglitz, National Interest: Death Cometh for the Greenback. The current system is simply unsustainable no matter how many cries on Wall Street there are to the contrary. Countries will be more and more reluctant to lend to the United States at the favorable terms that they have in the past, while the disadvantages associated with global instability may be mounting. We will be moving away from current arrangements, the dollar-reserve system. There are only two questions: will the movement away be orderly or disorderly, and will America play a part in shaping the new system that will emerge?
Deniz Igan et al, IMF: Three Cycles. Housing, Credit, and Real Activity. We examine the characteristics and comovement of cycles in house prices, credit, real activity and interest rates in advanced economies during the past 25 years, using a dynamic generalized factor model. House price cycles generally lead credit and business cycles over the long term, while in the short to medium term the relationship varies across countries. Interest rates tend to lag other cycles at all time horizons. While global factors are important, the U.S. business cycle, house price cycle and interest rate cycle generally lead the respective cycles in other countries over all time horizons, while the U.S. credit cycle leads mainly over the long term.
Lisa B. Kahn, Yale: The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy. Labor market consequences of graduating from college in a bad economy are large, negative and persistent. Those who graduate in bad economies may suffer from underemployment and are more likely to experience job mismatching since they have fewer jobs from which to choose. The disadvantage may persist if the importance of early labor market experience outweighs the later benefit of a better economy for factors such as promotions and training. Cohorts who graduate in worse national economies are in lower level occupations, have slightly higher tenure and higher educational attainment, while labor supply is unaffecte.
The Danish Economic Council: The Danish Economy. There are several reasons to expect a slow recovery, and that it will take years before the Danish production is at the same level as before the crisis. Important reasons are that households have suffered considerable wealth losses, that public finances have deteriorated which implies a need for fiscal consolidation and that there still is a considerable need for consolidation in the financial sector. The chairmanship recommends further fiscal easing next year than already planned for. Denmark is in need of a new plan to ensure long run fiscal sustainability. Early retirement in Denmark should be the main focus with regard to improve the fiscal sustainability.
Barry Eichengreen, Douglas A. Irwin, NBER: The Slide to Protectionism in the Great Depression: Who Succumbed and Why? The Great Depression was a breeding ground for protectionism. Those countries that clung to the gold standard were more likely to restrict trade than those that abandoned it. Without the flexibility to depreciate their currencies, they turned to trade restrictions in hopes that these would boost their domestic industries and curb unemployment. Had more countries been willing to abandon the gold standard and use monetary policy to counter the slump, fewer would have been driven to impose trade restrictions.
Shawn Kantor, Alexander Whalley, NBER: Do Universities Generate Agglomeration Spillovers? Evidence from Endowment Value Shocks. Using data on university endowments and stock market variation to proxy for university spending on research, K/W find that a 10 percent increase in higher education spending increases local labor income outside of the education sector by about 0.5 percent. Comparing this spillover to the results in related studies, they conclude that university activity does not appear to make a place any more productive than other forms of economic activity. However, the spillover effect of university spending is significantly larger for firms that are "technologically closer" to universities.
Andrew Gelman et al, Columbia: Inequality and Poverty: American and International Perspectives. Income inequality in the United States has risen during the past several decades. Has this produced an increase in partisan voting differences between rich and poor? We examine trends from the 1940s through the 2000s in the country as a whole and in the states. We find no clear relation between income inequality and class-based voting.
Shankar Vedantam, WPost: Persistence of Myths Could Alter Public Policy Approach. The conventional response to myths and urban legends, for example about the flu vaccine, is to counter bad information with accurate information. But the new psychological studies show that denials and clarifications, for all their intuitive appeal, can paradoxically contribute to the resiliency of popular myths.
Michael Lewis, Vanity Fair: Wall Street on the Tundra. Icelands economic cataclysm has at least one upside: Iceland is now the world leader in terms of gender equality. But Iceland’s rise from fourth place in the gender equality stakes to first adds weight to what might be called the Dumb Male Theory of Iceland’s collapse. The theory holds that 1. men are instinctively and destructively overconfident when investing 2. Iceland’s banks allowed men to explore those dismal investment instincts on a global scale.
Olivia Hudson, NYT: A Language of Smiles. Do some languages predispose — in a subtle way — their speakers to be merrier than the speakers of other languages? A set of experiments investigating the effects of facial movements on mood used different vowel sounds as a stealthy way to get people to pull different faces. The results showed that if you read aloud a passage full of vowels that make you scowl — the German vowel sound ü, for example — you’re likely to find yourself in a worse mood than if you read a story similar in content but without any instances of ü. Similarly, saying ü over and over again generates more feelings of ill will than repeating a or o.
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