PUZZLING OVER the ANATOMY of CRISES: Liquidity and the Veil of Finance
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Why Is There Finance? Insights from Marx's Monetary Theory Abstract
Why is there finance? Insights from Marx's monetary theory John Weeks Emeritus Professor of Economics Research on Money and Finance Group School of Oriental and African Studies University of London Abstract Not withstanding his great influence on progressive thought and practice in other areas, Marx's monetary theory has had relatively little impact. In the countless books in the Marxian tradition on economic crises finance and money have minor roles. The lack of influence of Marx's theory of money is largely explained by a belief that his views were either wrong or an anachronism because of their emphasis on commodity money. However, commodity money is an essential element in the labor theory of value. When placed in the context of the circulation of capital, commodity money is a powerful tool to explain the role of money itself and the nature of financial capital. Introduction Not withstanding his great influence on progressive thought and practice in other areas, Marx's monetary theory has had relatively little impact. In the countless books in the Marxian tradition on economic crises finance and money have minor roles compared to discussions of profitability, underconsumption and "disproportionality". 1 In part this results from a preoccupation with the debate over whether there is a tendency for profit rates to fall, over what time period and under what conditions. Deeper than this is a suspicion among Marxists that money and finance involve superficial and derivative phenomena that in themselves are of limited theoretical power. Closely related to the tendency to dismiss money and finance as of little importance in themselves is a suspicion, conviction for some, that Marx's treatment of the 1 Exceptions are Lapavitsas (1991, 2003), Lapavitsas and Itoh (1999) and Toporowski (2000, 2005), with the latter author from a broader political economy interest not limited to Marx. -
The On-Going Price of Perceiving Money As a Veil
International Journal of Economics and Finance; Vol. 9, No. 12; 2017 ISSN 1916-971XE-ISSN 1916-9728 Published by Canadian Center of Science and Education The On-Going Price of Perceiving Money as a Veil Emir Phillips1 1 JD/MBA MSFS, ChFC CLU is a candidate in the DBA Program at the Grenoble École de Management, Grenoble, France Correspondence: Emir Phillips, JD/MBA MSFS, ChFC CLU is a candidate in the DBA Program at the Grenoble École de Management, 1937 22nd St #1, Santa Monica, CA 90404, Grenoble, France. Tel: 310-930-6360. E-mail: [email protected] Received: September 20, 2017 Accepted: November 15, 2017 Online Published: November 20, 2017 doi:10.5539/ijef.v9n12p215 URL: https://doi.org/10.5539/ijef.v9n12p215 Abstract Until macroeconomic theory rebuffs the nature of finance, which is leverage (debt claims and credit instruments above current GDP output), shadow-banking will continue to lure capital into the financial sector, lower institutional banking interest rates, and de-incentivize commercial lending from the real sector, even at competitive risk-adjusted rates. This institutionalized misallocation of credit undermines the tidy neoclassical ―circular flow‖ apparatus where savings and earnings are allegedly pooled and then recycled through financial intermediaries into dynamic investment. Despite the mathematical complexity of DSGE models, the last financial crisis and its aftermath exposed the models‘ inadequacy for forecasting or even fully capturing economic reality. With no dynamic function for money, incorporating credit into the theoretical mindset of mainstream economics, including both neoliberal and (Post)-Keynesian traditions, has proven as yet unattainable. Holding fast to a (barter-like) Walrasian worldview, wherein the neutrality of money in the long-run, has meant debt does not exist and credit aggregates are not considered due to an a-historical mis-conceptualization of money/credit. -
Does Money Illusion Matter?
Does Money Illusion Matter? An Experimental Approach ERNST FEHR1 and JEAN-ROBERT TYRAN2 First Version: October 1997 This Version: February 1998 Abstract Money illusion means that people behave differently when the same objective situation is represented in nominal or in real terms. To examine the behavioral impact of money illusion we studied the adjustment process of nominal prices after a fully anticipated negative nominal shock in an experimental setting with strategic complementarity. We show that seemingly innocuous differences in payoff presen- tation cause large behavioral differences. In particular, if the payoff information is presented to subjects in nominal terms, price stickiness and real effects are much more pronounced than when payoff information is presented in real terms. The dri- ving force of differences in real outcomes is subjects’ expectation of higher nominal inertia in the nominal payoff condition. Due to strategic complementarity, these expectations induce subjects to adjust rather slowly to the shock. Keywords: Money illusion, nominal inertia, sticky prices, non-neutrality of money JEL: C92, E32, E52. 1. University of Zürich, Institute for Empirical Research in Economics, Blümlisalpstr. 10, CH-8006 Zürich. E-Mail address: [email protected] 2. University of St. Gallen, Department of Economics, Bodanstr. 1, CH-9000 St. Gallen. E-Mail address: [email protected] We are particularly grateful for comments by George Akerlof, Jim Cox, Urs Fischbacher, Simon Gächter, Linda Babcock, and Dick Thaler. In addition, we acknowledge helpful comments by the participants of Seminars at Bonn, Mannheim, the NBER conference on behavioral macroeconomics and the Amsterdam workshop for experimental economics. -
Trend Inflation, Indexation, and Inflation Persistence in The
Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve∗ Timothy Cogley University of California, Davis Argia M. Sbordone Federal Reserve Bank of New York Abstract A number of empirical studies conclude that purely forward-looking versions of the New Keynesian Phillips curve (NKPC ) generate too little inflation per- sistence. Some authors add ad hoc backward-looking terms to address this shortcoming. In this paper, we hypothesize that inflation persistence results mainly from variation in the long-run trend component of inflation, attributable to shifts in monetary policy, and that the apparent need for lagged inflation in the NKPC comes from neglecting the interaction between drift in trend in- flation and non-linearities in a more exact version of the model. We derive a version of the NKPC as a log-linear approximation around a time-varying inflation trend and examine whether such a model explains the dynamics of in- flation around that trend. When drift in trend inflation is taken into account, there is no need for a backward-looking indexation component, and a purely forward-looking version of the model fits the data well. JEL Classification: E31. Keywords:Trendinflation; Inflation persistence; Phillips curve; time-varying VAR. ∗For comments and suggestions, we are grateful to two anonymous referees. We also wish to thank Jean Boivin, Mark Gertler, Peter Ireland, Sharon Kozicki, Jim Nason, Luca Sala, Dan Waggoner, Michael Woodford, Tao Zha and seminar participants at the Banque de France, the November 2005 NBER Monetary Economics meeting, the October 2005 Conference on Quantitative Models at the Federal Reserve Bank of Cleveland, the 2004 Society for Computational Economics Meeting in Amsterdam, the Federal Reserve Banks of New York, Richmond, and Kansas City, Duke University, and the Fall 2004 Macro System Committe Meeting in Baltimore. -
The Role of Money Illusion in Nominal Price Adjustment
The Role of Money Illusion in Nominal Price Adjustment By LUBA PETERSEN AND ABEL WINN* This paper experimentally investigates whether money illusion generates substantial nominal inertia. Building on the design of Fehr and Tyran (2001), we find no evidence that agents choose high nominal payoffs over high real payoffs. However, participants do select prices associated with high nominal payoffs within a set of maximum real payoffs as a heuristic to simplify their decision task. The cognitive challenge of this task explains the majority of the magnitude of nominal inertia; money illusion exerts only a second-order effect. The duration of nominal inertia depends primarily on participants’ best response functions, not the prevalence of money illusion. Fehr and Tyran (2001) (hereafter FT) investigate the role of a specific form of money illusion – taking nominal payoffs as a proxy for real payoffs – in nominal price adjustment within a price-setting game where firms’ prices are strategic complements. In a laboratory setting, FT vary the payoff framing (real vs. nominal framing) and opponent types (a rational computer vs. human opponents) to study both the direct and indirect effects of money illusion. Their main finding is that a small amount of individual-level money illusion may generate significant nominal inertia following a negative monetary shock. The response to a positive monetary shock is asymmetric in that price convergence to equilibrium is considerably faster. Their results have been widely cited as evidence of money illusion, e.g. Yellen and Akerlof (2006), Cannon and Cipriani (2006), Brunnermeier and Julliard, (2008), Basak Yan (2010). While their experiments are innovative, we argue that certain features of FT’s experimental design hinder a clear interpretation of their results. -
Maurice Obstfeld
February 1, 2019 CURRICULUM VITAE OF MAURICE OBSTFELD PERSONAL DATA Address: Department of Economics University of California, Berkeley 549 Evans Hall #3880 Berkeley, CA 94720-3880 Telephone: 510-643-9646 Fax: 510-642-6615 E-mail: [email protected] Homepage: http://elsa.berkeley.edu/~obstfeld EDUCATION 1975-79: Massachusetts Institute of Technology (Cambridge, MA) Ph.D., September 1979. Dissertation: Capital Mobility and Monetary Policy under Fixed and Flexible Exchange Rates. Adviser: Rudiger Dornbusch. 1973-75: King's College, Cambridge University (Cambridge, U.K.) M.A., June 1975 (Mathematical Tripos, Parts II and III). 1969-73: University of Pennsylvania (Philadelphia, PA) B.A., Summa Cum Laude with Distinction in Mathematics, May 1973. 1 PRINCIPAL EMPLOYMENT EXPERIENCE Class of 1958 Professor of Economics, University of California, Berkeley, from July 1, 1995. Chair, Department of Economics, University of California, Berkeley, July 1, 1998-June 30, 2001. Professor of Economics, University of California, Berkeley, July 1, 1989-June 30, 1995. Visiting Professor of Economics, Harvard University, July 1, 1989—January 31, 1991. Professor of Economics, University of Pennsylvania, July 1, 1986—June 30, 1989. Professor of Economics, Columbia University, July 1, 1985—June 30, 1986. Associate Professor of Economics, Columbia University, July 1, 1981—June 30, 1985. Assistant Professor of Economics, Columbia University, July 1, 1979—June 30, 1981. OTHER EXPERIENCE Senior Nonresident Fellow, Peterson Institute of International Economics, Washington, DC, from February 2019. Economic Counselor and Director of the Research Department, International Monetary Fund, September 2015-December 2018. Member, President’s Council of Economic Advisers, Washington, DC, July 2014 – August 2015. One-Week Training Course, Bank of Korea Academy, August 2011, August 2013. -
Money Illusion Reconsidered in the Light of Cognitive Science
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Vincze, János Working Paper Money illusion reconsidered in the light of cognitive science IEHAS Discussion Papers, No. MT-DP - 2017/32 Provided in Cooperation with: Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences Suggested Citation: Vincze, János (2017) : Money illusion reconsidered in the light of cognitive science, IEHAS Discussion Papers, No. MT-DP - 2017/32, ISBN 978-615-5754-25-8, Hungarian Academy of Sciences, Institute of Economics, Budapest This Version is available at: http://hdl.handle.net/10419/222009 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen -
Monetary Policy and Economic Growth Under Money Illusion∗
Monetary Policy and Economic Growth under Money Illusion¤ Jianjun Miaoy and Danyang Xiez October 29, 2007 Abstract Empirical and experimental evidence documents that money illusion is persistent and widespread. This paper incorporates money illusion into two stochastic continuous-time monetary models of endogenous growth. Motivated by psychology, we model an agent's money illusion behavior by assuming that he maximizes nonstandard utility derived from both nominal and real quantities. Money illusion a®ects an agent's perception of the growth and riskiness of real wealth and distorts his consumption/savings decisions. It influences long-run growth via this channel. We show that the welfare cost of money illusion is second order, whereas its impact on long-run growth is ¯rst order relative to the degree of money illusion. Monetary policy can eliminate this cost by correcting the distortions on a money- illusioned agent's consumption/savings decisions. Key words: money illusion, inflation, growth, welfare cost, behavioral macroeconomics JEL Classi¯cation: D92, E21, E31, E52 ¤We bene¯ted from helpful discussions with Pengfei Wang and Hongjun Yan. yDepartment of Economics, Boston University, 270 Bay State Road, Boston MA 02215, USA, and Department of Finance, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong. Email: [email protected]. Tel: (852) 2358 8298. zDepartment of Economics, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong. Email: [email protected]. Tel. (852) 2358 7615. 1. Introduction The term money illusion refers to the phenomenon where people confuse nominal with real magnitudes. It is widely believed that this term was coined by Irving Fisher who devoted an entire book to the subject (Fisher (1928)). -
Introduction Bina Agarwal University of Delhi, India and Alessandro Vercelli University of Siena, Italy
1 Introduction Bina Agarwal University of Delhi, India and Alessandro Vercelli University of Siena, Italy Introduction ‘How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.’ (Adam Smith, [1759] 1966: 3) ‘[T]he insistence on the pursuit of self-interest as an inescapable necessity for rationality subverts the “self” as a free, reasoning being, by overlooking the freedom to reason about what one should pursue.’ (Amartya Sen, 2002: 46) Economics today is at an exciting stage of evolution, as it begins to reopen routes of interchange with other disciplines. In this interdiscip- linary exchange, psychology stands closer to centre-stage than most other disciplines. It has provided the grist for challenging many standard eco- nomic assumptions and catalysed the rapidly growing fields of behavioural economics and experimental economics. For most part of the twentieth century, and especially since the 1950s, the characterization of the human being as Homo economicus dominated economics. Strongly influenced by Newtonian Physics, to which is traced the formalization of modern economic theory, the underlying approach made the psychological characteristics of the economic agent largely irrel- evant. Indeed, the approach acted as a protectionist barrier against insights both from other social sciences and the humanities, and from the observed complexity of human behaviour in real life. The last two decades, how- ever, have brought an emerging recognition of the crucial role played 1 Agar: “chap01” — 2005/3/24 — 11:19 — page1—#1 2 Introduction: Agarwal and Vercelli by the psychological attributes of economic agents in explaining economic behaviour.1 This has paved the way for a less reductionist approach to the subject. -
Commodity ^Markets
INDEX 1993 VOLUME 30 Articles Roman Frydman & Andrzej Rapaczynski, Mohan Munasinghe, The Economist's Approach to Privatization in Eastern Europe: Is the State Masood Ahmed & Sudarshan Gooptu, Portfolio Sustainable Development, December Withering Away? June Investment Flows to Developing Countries, March Mohan Munasinghe, Wilfrido Cruz, & Jeremy J. Luis Guasch & Thomas Glaessner, The How Asad Alam & Sarath Rajapatirana, Trade Reform Warford, Are Economywide Policies Good for the and Why of Credit Auctions, March Environment? September in Latin America and The Caribbean, September Robert Hecht & Philip Musgrove, Rethinking the Saleh Nsouli, Structural Adjustment in Sub-Saharan Dennis Anderson & Kulsum Ahmed, Where We Government's Role in Health, September Africa, September Stand with Renewable Energy, June Ian Hume & Brian Pinto, Prejudice and Fact in Michael Papaioannou & Lawrence Duke, The Nancy Birdsall & Andrew Steer, Act Now on Global Poland's Industrial Transformation, June Internationalization of Emerging Equity Markets, Warming—But Don't Cook the Books, March Dean Jamison, Investing in Health, September September Jose-Luis Bobadilla & Helen Saxenian, Designing George Kopits, Reforming Social Security Systems, Sanjay Pradhan & Vinaya Swaroop, Public an Essential National Health Package, September June Spending and Adjustment, September Guillermo Calvo & Carlos Vegh, Currency Pierre Landell-Mills, National Perspective Studies in Peter Quirk & Hernan Cortes-Douglas, The Substitution in High-Inflation Countries, March Africa: A Vision -
Money Illusion and Coordination Failure
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Fehr, Ernst; Tyran, Jean-Robert Working Paper Money Illusion and Coordination Failure IZA Discussion Papers, No. 1013 Provided in Cooperation with: IZA – Institute of Labor Economics Suggested Citation: Fehr, Ernst; Tyran, Jean-Robert (2004) : Money Illusion and Coordination Failure, IZA Discussion Papers, No. 1013, Institute for the Study of Labor (IZA), Bonn This Version is available at: http://hdl.handle.net/10419/20248 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu IZA DP No. 1013 Money Illusion and Coordination Failure Ernst Fehr Jean-Robert Tyran DISCUSSION PAPER SERIES DISCUSSION PAPER February 2004 Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor Money Illusion and Coordination Failure Ernst Fehr University of Zurich and IZA Bonn Jean-Robert Tyran University of St. -
June 2020 Ph.D., Columbia University, New York, 1988. Advisor
June 2020 CARMEN M. REINHART CURRICULUM VITAE EDUCATION Ph.D., Columbia University, New York, 1988. Advisor: Robert Mundell. Doctoral Dissertation: “Real Exchange Rates, Commodity Prices, and Policy Interdependence.” M. Phil., 1981 and M.A., Columbia University, New York, 1980. B.A., Florida International University, Miami, 1978. PROFESSIONAL POSITIONS Chief Economist and Vice President, World Bank, Washington DC, June 2020- Minos A. Zombanakis Professor of the International Financial System, Harvard Kennedy School, July 2012 – Dennis Weatherstone Chair, Peterson Institute for International Economics, Washington DC, 2011 – June 2012. Director, Center for International Economics, 2009-2010; Professor, School of Public Policy and Department of Economics, 2000 – 2010; Director, International Security and Economic Policy Specialization, 1998 – 2001; Associate Professor School of Public Policy, University of Maryland, 1996 – 2000. Senior Policy Advisor and Deputy Director, Research Department, 2001 – 2003. Senior Economist and Economist, 1988 - 1996, International Monetary Fund. Chief Economist and Vice President, 1985 – 1986; Economist, March 1982 - 1984, Bear Stearns, New York. AWARDS AND HONORS Karl Brunner Award, Swiss National Bank, planned September 2021. Mundell-Fleming Lecture, International Monetary Fund, planned November 2020. Economica, Coase-Phillips Lecture, London School of Economics, London, May 2020. FIMEF Diamond Finance Award, Instituto Mexicano de Ejecutivos de Finanzas, Mexico, August 2019. Homer Jones Memorial Lecture, St. Louis Federal Reserve, July 2019. Thomas Schelling Lecture, University of Maryland, April 2019. Carmen M. Reinhart Pa ge 1 King Juan Carlos Prize in Economics, December 2018. Wiki. Bernhard Harms Prize, Kiel Institute for the World Economy. October 2018. Adam Smith Award, National Association of Business Economists, September 2018. William F. Butler Award, New York Association for Business Economists, September 2017.