directions of thought

an example of how panics self-fulfills. what makes some more optimistic/pessimistic is a random walk process.

http://www.ft.com/intl/cms/s/0/7017ee50-2581-11e1-9cb0-00144feabdc0.html#axzz1gRYr3LXy

a decent viewpoint on the diversity of crises' causes. it's not about whom is to blame, but rather what should be done!

http://www.project-syndicate.org/commentary/stiglitz146/English


and a proposal for the ECB (quite reasonable I assume - again everything is about incentives - in this case, what the central bank allows private banks to do):

http://online.wsj.com/article/SB10001424052970203893404577098252697593684.html?mod=rss_opinion_main&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Fxml%2Frss%2F3_7041+(WSJ.com%3A+Opinion)

why econ?

During a recent doctoral course, we were asked by the professor why we are in econ. Used to go with the flow, it was kind of a good mental exercise to practice. And, what is more, going back to simple, basic questions refills you with motivation to move on and follow your purpose.

Some interesting arguments showed up. The professor himself recalled he wanted to understand growth - "why some countries grow more than others?". Other colleagues coming from different corners of the world referred to their own countries' experiences: "I come from Russia and I wanted to understand the transition process", "I come from Argentina and I wanted to understand the big 90's crisis and the huge inflation we experienced". Some more philosophical answers referred to the morals of economic decisions, freedom, motivation and incentives.

So, I have got inspired and asked it to my master students. Why econ? Among answers, I recall arguments which went in the following directions: "I find of great importance to understand the economic policies the government implements and the motives which stay behind - they affect all of us", "I think it's very interesting to model the real world in a system of equations and find the equilibrium". Inspiring answers can arise from very basic questions. Keep it simple, as they say!

Myself, I also referred to my origins. Even if, on a more sincere tone, starting studying econ during bachelor was a random decision, like for the majority of my generation. But it was a lucky one - "appetite comes by eating"! So I answered something like: I come from Romania, where I find of great relevance the difference among generations - there are the young people, the 2.0./3.0 generation which seeks freedom and adors capitalist-like, right (center-right) policy decisions; and there is the old generation, which has the nostalgy of communism and still believes in the power of the government to create their well-being. The latter are those who prefer left (center-left) decisions and are ready to vote for the candidate who offers them a bundle of food, exactly prior to elections. There results a goverment and a set of policy measures which have to satisfy two types of consumers, two types of workers and, ultimately, two types of investors (rich people are mainly from the old generation, the so-called "people with network", who had THE information after the communism fall to "take the GOOD opportunities").

Now, when I try to put down my idea from then, some interesting research topics come up in my mind. What are the implications of this kind of arrangement on income inequality? Considering the assumption that there are two kind of consumers, workers, investors, could we model, in an overlapping generations setup, a more realistic equilibrium? Could there be implemented a set of policies which provides differentiated incentives for the two categories a la Akerlof or Spence?

and the nobel prize goes to... macroeconomics

http://www.nobelprize.org/nobel_prizes/economics/laureates/2011/press.html

akerlof's nobel prize speech

http://www.nobelprize.org/mediaplayer/index.php?id=501

movies to watch to get the crisis

Too Big to Fail - http://www.youtube.com/watch?v=wVV6dzDOgQ0&NR=1

Inside Job - http://www.youtube.com/watch?v=FzrBurlJUNk

wise quote

“To act on the belief that we possess the knowledge and the power which enables us to shape the process of society entirely to our liking, knowledge which in fact we don’t possess, is likely to make us do much harm” (von Hayek, 1974)

solow on new econ rules

http://blog-imfdirect.imf.org/2011/04/02/new-policy-ideas-from-robert-solow/

and for other ideas from the same event: http://www.imf.org/external/np/seminars/eng/2011/res/index.htm

random thoughts: link macro and psychology

I've been planning for a long time to put together what macro-economists argue about the future/present state of research in this field; and then to make some humble inferences on how I see this. Talking about the state of macro these days is somehow equivalent to talking about how the world looks like after the big financial crisis and trying to make up models which are closer to the real facts. Nothing spectacular until now, right? This is what each model has been trying to do so far!

For the moment, I have in mind these recent projections which say that the financial crisis will come back. And I dare to make a link with any down period a person may have in his life (either due to some illness or just depression coming from some bad habits in his thinking or behavior); let's call this depression. The guy goes to the doctor who tells him he should do that and that and then he follows the advice, he gets better, he is happier! But, at a certain point, he turns out to his bad habits from greed or temporary lack of self-discipline or whatever. And then, he may eventually get depressed again!

This is the same as financial markets and, respectively, as economies in general: something goes wrong, we try to repair it, it gets better, but then we turn back to bad habits and, eventually, the bad thing occurs again, maybe in another form or magnitude, but having the same underline cause. No learning effect? Of course, on short term, as we have a rather short term memory (a generation like period, let's say), we may be more precautionary. Some may argue that this is why history is written: for next generations to learn from past errors. But is this really the case?

Update: I did not intend to be pessimistic in any sense. I believe that by assuming our vulnerability as humans, society and economy in the end, we may be more closer to understanding our behavior and tackle the problems which we encounter and the weaknesses we deal with. Now, translating this in models, probably has already been tried to a certain extent and will undoubtedly be tried in the future. And in the end this is what keeps all social sciences so interesting: there are always models to improve, questions to ask, assumptions to relax or not, in order to represent a better picture of reality.

ken rogoff on project syndicate

http://www.project-syndicate.org/series/the_unbound_economy/description

about the thesis experience

master thesis msc in economics - 11th of june 2010 : explaining the retrenchment in global imbalances (during the recent financial crisis). great experience, ups and downs, sensible results:

a) Did Current Account (CA) deficit countries adjust more?
No, it was a global current account reversal!

b) What does explain the reduction in global imbalances?
Higher global CA imbalances (deficit/surplus) imply higher adjustments (increase/decrease in CA balance) –early warning system

c) Do economic and financial development explain cross-country differences in CA reversals?
-developing countries seem to have been obliged to adjust their CA more than
advanced economies, but real GDP matters only for some specifications
-bank leverage (claims/deposits) is relevant

d) Do trade and financial openness justify the retrenchment in external positions?
-trade openness remains significant for the 2008-2009 CA adjustment

lessons from working on the master thesis:
- concentrate on ideas - what do i want to show? where do i want, more or less, to arrive? - rather difficult to focus on these even after reading the literature and arranging the data
- keep it original - think about the subject and perceive it in my own manner
- read a lot, get idea, concentrating on keeping track: put things down even if you are not sure you will use them
- data: get through it, analyze it, feel it, keep the analysis simple and, only if still in time, try fancy things
- appreciate the learning process - redefine each day your target and thin if the step you are about to perform adds value and makes sense for the overall picture
- combine writing and scientific work, but still assume that when you have the results the writing comes very easily
- think of the best way to put down your knowledge and intuition - concentrate on trasmitting things nicely, simply and coherently

about doctoral studies

these are old thoughts from when i was weighing between enrolling for a PhD program or going for a normal job in the econ research industry `ou ailleurs`. now things are settled: i've just started my PhD econ studies in lausanne and i am preparing my first TA experience in advanced macro: great challenges ahead.

as i have been missing from here, now i try to catch up with writing down - here are some pros and cons for the PhD studies:

- fits my way of being - idealistic (both in a positive and negative manner) - it's the same idea: targeting higher for going on and being better
- it's a way of working hard now for living better afterwards
- i like theory and finding its link with empirics (or real life)
- research is challenging (even if it can become just an ambition)
- it requires a great individual discipline - it means mostly working alone (or, more nicely said, on your own), while depending on the others' feedback (may involve a not very fair team work)
- the originality is the key - no matter if there's something that other people understand or other researchers look for, you obtaining the result or just you putting in practice the idea makes you the one who owns it

(to be completed while getting through the process - five years to come)

nice interview

nice interview and econ resource:
http://argmax.com/stuff/stuff.php?name=interview.html

theory vs empirics

this mendoza, quadrini, rios-rull (JPE 2009) makes me think again that theory is ten times nicer than empirics; it's true that sometimes you get really lost, but this time i feel like i would like to be one of those for which "applied econ is too difficult, so they concentrate on theory" (see phd comics).

anyway, my thesis goes in the empirics direction, trying to keep the intuition and less to look for fancy econometrics; time is a damn good pressure and hopefully my ally to finish it in time and do a decent job. so i leave fascinating equations for future work, hopefully...

btw, i have been missing this place...

conversations with leading economists (in the spare time)

I found this book by chance in the library some weeks ago: "Conversations with leading economists" (Snowdon, Vane, Edward Elgar, 1999). Some inspiring remarks caught my eyes.

Blanchard:
"models are about clarifying your thoughts and explaining them to others";
"I like to think big - although not too big - and macroeconomics fulfils that need well";
"the main lessons I drew from the Great Depression are that aggregate demand can fall for no obvious reason ex ante, and that the adjustment mechanisms which are supposed to get the economy back on its feet can actually produce perverse effects";
"I suppose this tends to happen to many paradigms - they can die of old age even if they are right";
the consensus position on the core of macroeconomics today: "in the short run shifts in aggregate demand affect output and that in the medium and long run supply-side factors dominate";
East European transition: " I have first been struck by how you can have very large variations in output which have nothing to do with shifts in aggregate demand or monetary and fiscal policy"; the optimal sequencing of policies to ensure a smooth transition: "do not eliminate all subsidies at once, do not try stabilization if, politically you are not powerful enough, do not do privatization if price signals are still very noisy"

Tobin:
"postulating representative agents whose optimizations generate macroeconomic behavioral equations - this is a considerable sacrifice of the essence of much of macroeconomics"

again about models

As I have recently spoken here about models in life, I was thinking about the fact that each economist has undoubtly at least one model whose papers he adors and whom he always cites in his speeches and papers. As an economist-to-be, I have been continously looking for words and thoughts that could inspire me, those things you read or hear and agree with them in the most profound sense. The literature I am reading for the moment consists of works of very well-known macroeconomists. Apart from the fact that I am looking for inspirational ideas for the thesis, I am searching for a complete flow of thinking besides the words, graphs and regressions.

A potential one seems to be Carmen Reinhart - at least I love her research areas, her vertical way of expressing things and last but not least, she is the most appreciated woman-economist.

One of her short speeches on the crisis issues is here.