Notes for this week’s episode, for which I was joined as co-host by Matt Klein of Alphaville, are below:
Credit and crises
Alan Taylor is an economic historian at the University of California – Davis. In a recent paper with collaborators Oscar Jorda and Moritz Schularick, the authors summarise their decades-long work on financialisation, which we discussed with Alan.
From the paper:
Our previous research uncovered a key stylized fact of modern macroeconomic history: the “financial hockey stick.” The ratio of aggregate private credit to income in advanced economies has surged to unprecedented levels over the second half of the 20th century.
The goal of this paper is to show that with this “great leveraging” key business cycle moments have become increasingly correlated with financial variables. Our long-run data show that business cycles in high-debt economies may not be especially volatile, but are more negatively skewed. Higher debt goes hand in hand with worse tail events.
A great deal of modern macroeconomic thought has relied on the small sample of US post-WW2 experience to formulate, calibrate, and test models of the business cycle, to calculate the welfare costs of fluctuations, and to analyze the benefits of stabilization policies. Yet the historical macroeconomic cross country experience is richer.
An important contribution of this paper is to introduce a new comprehensive macro-financial historical database covering 17 advanced economies over the last 150 years. This considerable data collection effort that has occupied the better part of a decade, and involved a small army of research assistants.
Matt and I are joined by Emiliya to discuss some of the events of the year’s first half. Matt has been struck by the Fed’s realisation that it would not be able to raise rates at the pace it expected at the end of last year. Emiliya has been troubled by the rise of populist sentiment throughout the developed world, and we talk about the role that income inequality has (and hasn’t) played. Relatedly, I’ve been dispirited by how the same populist sentiment has manifested in such loud and ugly attitudes towards immigrants and refugees.
- Alphachat: From the Trump to the Tramp
- Podcast: the Trump economy
- Alphachat: the psychology and neuroscience of financial decisions
- Alphachat: comparing the candidates’ tax plans, and a GBP view from the US
- Alphachat: Tim Harford on the unheralded virtue of messiness
- Alphachat: Ryan Avent on the social capital of firms, development economics, and monetary policy
- Alphachat: Dan Drezner on forecasting the next-gen political economy
- Alphachat bonus episode: Arlie Russell Hochschild’s guide to Trumpland
- Alphachat: the problem with drug pricing
- Alphachat: the egregiously protectionist dairy racket in… Canada?