Finance

In his latest annual address at Cass Business School, Visiting Professor Lord Adair Turner warned that the world is caught in a ‘debt overhang’.

Do large firm dynamics drive the business cycle? We answer this question by developing a quantitative theory of aggregate fluctuations caused by firm-level disturbances alone. We show that a standard heterogeneous firm dynamics setup already contains in it a theory of the business cycle, without appealing to aggregate shocks.

We call attention to the class of models that serve as the foundation for the rational expectations hypothesis (REH). Models in this class rule out completely any structural change that cannot be fully anticipated with a probabilistic or other quantitative rule. REH models are abstractions of rational decision-making, but only in a hypothetical world in which participants can fully anticipate when and how they might revise their understanding of the process driving outcomes.

We propose several multivariate variance ratio statistics. We derive the asymptotic distribution of the statistics and scalar functions thereof under the null hypothesis that returns are unpredictable after a constant mean adjustment (i.e., under the weak form Efficient Market Hypothesis). We do not impose the no leverage assumption of Lo and MacKinlay (1988) but our asymptotic standard errors are relatively simple and in particular do not require the selection of a bandwidth parameter. We extend the framework to allow for a time varying risk premium through common systematic factors.

We develop adjustments to align the NIPA measures of key household flows with cash flow concepts that better reflect household budgets and demand.

Rapid private-debt growth threw Japan into crisis in 1991 and did the same to the United States and Europe in 2008. China may be next.

How can we reconnect economic success to socioeconomic outcomes?

As the pace of financial crises quickens and the volatility of economic shocks intensifies, we need new ways to understand and respond to instability. This program coordinates our research efforts on finance, macroeconomics, and monetary economics.

Michael Greenberger discusses the current state of play of regulatory reform and gives a barely passing grade.

The solutions to Greece’s crisis challenge many existing economic paradigms, including the concept of “money” itself.

Rana Dasgupta shares his view of the contradictions and tensions of India’s economic and political scenes.

Cecilia Nahon, Argentina’s Ambassador to Washington, DC., discusses the issues plaguing the Argentine government in it’s attempts to conclude debt restructuring.

This chapter surveys experimental research on networks in economics.