The macroeconomics of financial crises: How risk premiums, liquidity traps and perfect traps affect policy options

The paper shows that structural models of the IS-LM and Mundell-Fleming variety have a lot to tell about the macroeconomics of the current global crisis. In addition to demonstrating how the emergence of risk premiums in money and capital markets may drive economies into recessions, it shows the following: (1) Liquidity traps may occur not only when interest rates approach zero but at positive and/or rising rates as well; (2) Fiscal policy works even in a small, open economy under flexible exchange rates when the country is stuck in a liquidity trap; (3) Near the fringe of liquidity traps, the risk arises of perfect traps, in which neither monetary nor fiscal policy works when used in isolation, but policy coordination is called for; and (4) Massive financial crises in the domestic money market may even destabilize the economy.financial crisis, credit crunch, liquidity trap, zero lower bound, risk premiums, policy options, fiscal policy, monetary policy, open economy.

Clothes for the Emperor or Can Graduate Schools Learn From Undergraduate Macroeconomics?

The current crisis is not only one of financial markets, but also of macroeconomics. Leading scholars call for a paradigm shift away from dynamic general equilibrium models, though some argue that the profession's arsenal already contains the tools and historical lessons needed to deal with such crises. Taking this view to the limit, this note demonstrates that the workhorse models of undergraduate macroeconomics not only permit a refined view and classification of financial crises. These models also identify scenarios under which either policymakers would be ill advised to follow conventional prescriptions, or full-scale depressions loom that cannot be fought by means of fiscal or monetary policy alone.Teaching macroeconomics, lessons, graduate, undergraduate, financial crisis, liquidity trap, risk premium

Teaching Macroeconomics after the Crisis: A Survey among Undergraduate Instructors in Europe and the U.S.

An online survey among undergraduate macroeconomics instructors reveals that roughly half of them were scared when the crisis erupted and remain wary that more may be in the offing. As regards teaching, courses feature much the same lineups of models as they did before the crisis. A striking change concerns public debt dynamics, which receives much more emphasis. Regarding the finer fabric of undergraduate macro teaching, exciting things are going on. A host of topics related to financial markets has entered the curriculum, and there is more interest in economic history, the history of economic thought and case studies.Financial crisis, teaching, undergraduate, macroeconomics.

PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies

This paper asks whether rating agencies played a passive role or were an active driving force during Europe's sovereign debt crisis. We address this by estimating relationships between sovereign debt ratings and macroeconomic and structural variables. We then use these equ-ations to decompose actual ratings into systematic and arbitrary components that are not explained by observed previous procedures of rating agencies. Next, we check whether both systematic and arbitrary parts of credit ratings affect credit spreads. We find that both do, which opens the possibility that arbitrary rating downgrades trigger processes of self-fulfilling prophecy that may drive even relatively healthy countries towards default.Sovereign debt ratings, sovereign default, debt crisis, budget deficit, rating agencies, PIGS, risk premiums, government bond spreads.

Trust your instincts:The relationship between intuitive decision making and happiness

Epstein (1994; 2003) proposed that there are two cognitive information processing systems that operate in parallel: the intuitive thinking style and the rational thinking style. Decisional fit occurs when the preferred thinking style is applied to making a decision and research has shown that this fit increases the value of the outcome of a decision. Additionally, decisional fit leads to less regret, even when post hoc evaluations show the decision to be incorrect. It has not yet been determined whether decisional fit correlates with greater happiness and hence, the purpose of the current study was to investigate the difference between styles of thinking, styles of decision making and the impact of decisional fit on happiness scores. Individual differences in thinking and decision style were measured using an online interactive questionnaire (N = 100), and an ANOVA, hierarchical multiple regression, and a series of t-tests, were used to investigate the relationship between thinking style, decision style, decisional fit, and happiness, thereby addressing a gap in the existing literature. The major findings from the current study show that intuitive thinking has a strong positive correlation with happiness; that intuitive thinkers are more likely to utilize intuitive decisional style, than rational thinkers; and that when both rational and intuitive thinkers experienced decisional fit, higher ratings of happiness were reported. Explanations and recommendations for future studies are outlined in the discussion

The Macroeconomics of Financial Crises: How Risk Premiums and Liquidity Traps Affect Policy Options

The paper offers an overview of what structural models of the IS-LM and Mundell-Fleming variety can tell about the macroeconomics of economic crises. In addition to demonstrating how the emergence of risk premiums in money and capital markets can generate liquidity traps at positive interest rates and may drive economies into recessions, it shows the following: (1) Fiscal policy works even in a small, open economy under flexible exchange rates when the country is stuck in a liquidity trap; (2) Near the fringe of liquidity traps, there may be perfect traps, in which neither monetary nor fiscal policy works when used in isolation but policy coordination is called for; and (3) Massive financial crises in the domestic money market may even destabilize the econom

PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies

This paper asks whether rating agencies played a passive role or were an active driving force during Europe's sovereign debt crisis. We address this by estimating relationships between sovereign debt ratings and macroeconomic and structural variables. We then use these equations to decompose actual ratings into systematic and arbitrary components that are not explained by previously observed procedures of rating agencies. Finally, we check whether systematic, as well as arbitrary, parts of credit ratings affect credit spreads. We find that both do affect credit spreads, which opens the possibility that arbitrary rating downgrades trigger processes of self-fulfilling prophecies that may drive even relatively healthy countries towards defaul

Targeting histone methyltransferases and demethylases in clinical trials for cancer therapy

Drawing of Object No. 4

Gamifying Digital Work: An Empirical Investigation how Gamification Affects IS Use Appraisal

Information systems (IS) and their healthy use are becoming increasingly important in the digital work environment. The cognitive appraisal of an IS-enabled demand is decisive for whether IS use leads to positive or negative outcomes. This work investigates how gamification integrated into IS can support challenge appraisal and reduce threat appraisal of IS-enabled demands. We conduct an online experiment to examine the impact of gamification on appraisal. We simulate time urgency in a gamified IS and examine how challenge and threat appraisal develop among participants during the experiment. We examine the panel data with a Latent Growth Model and find that gamified IS does not initially reduce threat appraisal but reduces it over time. Challenge appraisal is not significantly higher among users working in gamified IS. That this hypothesiszed effect does not show in the data might require further research. Our paper contributes to a better understanding of the cognitive appraisal process in IS use research and identifies gamification as a valuable tool to positively influence the cognitive appraisal process