The media and various commentators have recently likened the subprime crisis and its ramifications to date to the great depression of the thirties. There no doubt are similarities between the two crises. However it is important to realize that there also are important differences. Those differences lead one to believe that the persistence and severity of the current crisis, although serious, will be substantially milder than those of the great depression. Following a brief summary of the main similarities this blog focuses therefore on the differences between the two episodes.
1. Introduction1 Conventional economic wisdom is that, at least in the short and intermediate runs, exchange rates behave as random walks.2 Does this mean that exchange rates are unrelated to fundamentals such as current account deficits and fiscal or monetary policies? Most economists would argue that, although the bulk of empirical work supports the view […]
1. The past versus the present Twenty years ago and earlier most central banks in the world functioned as departments of ministries of finance. They were expected, by law, custom or both, to utilize their policy instruments to achieve a myriad of objectives like high levels of growth and employment, provision of funds to government […]