Explaining the Great Moderation: Credit in the Macroeconomy Revisited

This study in recent history connects macroeconomic performance to financial policies in order to explain the decline in volatility of economic growth in the US since the mid-1980s, which is also known as the ‘Great Moderation’. Existing explanations attribute this to a combination of good policies, good environment, and good luck. This paper hypothesizes that before and during the Great Moderation, changes in the structure and regulation of US financial markets caused a redirection of credit flows, increasing the share of mortgage credit in total credit flows and facilitating the smoothing of volatility in GDP via equity withdrawal and a wealth effect on consumption. Institutional and econometric analysis is employed to assess these hypotheses. This yields substantial corroboration, lending support to a novel ‘policy’ explanation of the Moderation.real estate, macro volatility

"Causes of Financial Instability: Don’t Forget Finance"

Given the economy's complex behavior and sudden transitions as evidenced in the 2007–08 crisis, agent-based models are widely considered a promising alternative to current macroeconomic practice dominated by DSGE models. Their failure is commonly interpreted as a failure to incorporate heterogeneous interacting agents. This paper explains that complex behavior and sudden transitions also arise from the economy's financial structure as reflected in its balance sheets, not just from heterogeneous interacting agents. It introduces "flow-of-funds" and "accounting" models, which were preeminent in successful anticipations of the recent crisis. In illustration, a simple balance-sheet model of the economy is developed to demonstrate that nonlinear behavior and sudden transition may arise from the economy’s balance-sheet structure, even without any microfoundations. The paper concludes by discussing one recent example of combining flow-of-funds and agent-based models. This appears a promising avenue for future research.Credit Crisis; Finance; Complex Systems; DSGE; Agent-based Models; Stock-flow Consistent Models

Risk and De-Collectivisation: Evidence from the Czech Republic

The replacement of wage-labour farms by family farms in Central and Eastern Europe during the transformation has been more limited than was initially expected. In this paper a formal framework is developed in order to analyse the behaviour of family farms and socialist-style farms in the presence of risk, given the typical post-socialist environment. Management incentives, ownership structure, lump-sum transfers and consumption choices are shown to have the potential to limit the size of family farms relative to socialist-style farms. The hypotheses are tested with survey data collected by the author in the Czech Republic.transition, agriculture, structural change, risk, survey data, Risk and Uncertainty, D21, D81, O18, Q12,

Banks As Social Accountants: Credit and Crisis Through an Accounting Lens

This paper probes the role of banks and credit in our socio-economic system using the metaphor of banks as social accountants (Stiglitz and Weiss 1988). It highlights the credit nature of money, and thus the fact that money is an accounting construct. This motivates the viewing of financial booms and crises through an accounting lens. By accounting necessity, credit creation in deposit-taking institutions implies debt creation. The analysis is that self-amortizing credit to the real sector grows apace with the size of the economy while credit to financial asset markets creates a net debt overhead on the real economy, as illustrated by dissection of long-term credit flows in the US economy. The long boom in credit to the financial sector so led to the growth of debt since the 1980s and onto the credit crisis. Turning to the behavioral aspects of credit and debt growth, the paper also discusses the role of banks and regulators in facilitating the boom. It identifies three ways in which debt growth was de-emphasized in monitoring and policy making.credit; economic history; banks; accounting; crisis; regulation

This is not a credit crisis

Using an analogy with ancient Babylonia as its leading motive, this Viewpoint argues that the credit crisis is the symptom of an underlying problem. Fuelled by government policies, unprecedented debt levels were run up in industrialized countries over the last quarter century. Present policies of financial sector bailouts are not only unwise use of taxpayer’s money. They maintain economic structures opposed to what Classical liberals such as JS Mill envisaged as a free market economy.credit crisis; debt; Babylonia; Mill; Liberalism

RURAL LIVELIHOODS IN ARMENIA

In this paper the structure of the rural economy in Armenia is explored from a household perspective. The paper draws on the livelihoods framework, recognizing the different capitals and activities that support rural households' livelihood strategies. Ownership of capitals and access to activities are examined in relation to the incidence of poverty on the basis of data from a recent large-scale survey of rural households in Armenia. Different measures for the outcome of livelihood strategies in terms of well-being are observed, which are consistently linked to income levels across poor and other households. Income-poor households are found to be less well-endowed especially with financial and social capital. They derive smaller income shares from economic activities, and more from dissaving and social payments. The findings are relevant to policies aimed at alleviating rural poverty.Community/Rural/Urban Development, Labor and Human Capital,

Mortgage Lending and the Great moderation: a multivariate GARCH Approach

Financial innovation during the Great Moderation increased the size and scope of credit flows in the US. Credit flows increased both in volume and with regard to the range of activities and investments that was debt-financed. This may have contributed to the reduction in output volatility that was the Great Moderation. We hypothesize that during the Great Moderation (i) growth in mortgage finance partly decoupled from fundamentals as measured by overall output growth and (ii) this allowed mortgages less to finance residential investment and more to finance spending on other GDP components. We document that the start of the Moderation coincided with a surge in bank credit creation (especially mortgage credit), a rise in property income, a rise in the consumption share of GDP, and a change in correlation (from positive to negative) between consumption and non-consumption GDP components (investment, export and government expenditure). In a multivariate GARCH framework, we observe unidirectional causality in variance from total output to mortgage lending before the Great Moderation, which is no longer detectable during the Great Moderation. We also find that bidirectional causality in variance of home mortgage lending and residential investment existed before, but not during the Great Moderation. Both these findings are consistent with a role for credit dynamics in explaining the Great Moderation.great moderation; mortgage credit; multivariate GARCH; causality

Visual research in clinical education

AIM: The aim of this paper is to explore what might be gained from collecting and analysing visual data, such as photographs, scans, drawings, video and screen recordings, in clinical educational research. Its focus is on visual research that looks at teaching and learning ‘as it naturally occurs’ in the work place, in simulation centres and other sites, and also involves the collection and analysis of visual learning materials circulating in these sites. BACKGROUND: With the ubiquity of digital recording devices, video data and visual learning materials are now relatively cheap to collect. Compared to other domains of education research visual materials are not widely used in clinical education research. The paper sets out to identify and reflect on the possibilities for visual research using examples from an ethnographic study on surgical and inter-professional learning in the operating theatres of a London hospital. MAIN CONTRIBUTION: The paper shows how visual research enables recognition, analysis and critical evaluation of (1) the hidden curriculum, such as the meanings implied by embodied, visible actions of clinicians; (2) the ways in which clinical teachers design multimodal learning environments using a range of modes of communication available to them, combining, for instance, gesture and speech; (3) the informal assessment of clinical skills, and the intricate relation between trainee performance and supervisor feedback; (4) the potentialities and limitations of different visual learning materials, such as textbooks and videos, for representing medical knowledge. DISCUSSION AND CONCLUSION: The paper concludes with theoretical and methodological reflections on what can be made visible, and therefore available for analysis, explanation and evaluation if visual materials are used for clinical education research, and what remains unaccounted for if written language remains the dominant mode in the research cycle. Opportunities for quantitative analysis and ethical implications are also discussed

Something of a Paradox: The Neglect of Agriculture in Economic Development

This paper argues that investment in agriculture has a large and continuing developmental importance in terms of both economic growth and poverty reduction. Moreover, targeted public resources have proven to be indispensable in achieving these results. Both arguments are supported with novel analyses which update and strengthen the traditional case for agriculture-led development with public-sector involvement. But despite the strong case for agriculture-led development strategies, the authors find that the financial resources allocated towards this sector have strongly declined over the last three decades, and they suggest that a shift towards new development paradigms since 1980 might be a significant explanation for this apparent Agricultural Paradox. This conjecture is tested with data on foreign aid, public expenditure, PRSP contents, and empirical analyses of the intellectual resources devoted to the study of agriculture in development by World Bank researchers. The authors conclude with a critical discussion of these disturbing trends.Agricultural Productivity, Economic Growth, Poverty Alleviation, Urban Biases, Public Expenditure, Foreign Aid, Washington Consensus., International Development,

Disaggregated Credit Flows and Growth in Central Europe

The aim of this paper is to explore the link between credit and output in the context of a developed transition economy. Salient credit market features of these economies are (i) credit market imperfections leading to constraints on growth and (ii) the rapidly growing importance during transition of their financial sectors (the insurance, pension funds and real estate sectors). We develop a framework of credit and output including separate measures for credit to the real sector and financial sectors and for credit constraints, taking account of the role of trade credit. In our empirical work we focus on the Czech Republic because of the level of its financial development and data quality. In VAR and ARIMA analyses we find that our disaggregated measures for credit flows are better predictors of nominal growth than traditional, aggregate measures.Credit, growth, transition, central Europe, Czech Republic