Note: pasted below is the material I am handing students at 4pm today (Tuesday, October 28), as a guide to what to expect from this class. We hope to webcast the second class, next week, Tuesday, November 4; details to follow. Other forms of interaction will depend on interest expressed by you and by the students.
Continue reading “MIT Global Crisis Class: Outline”
Day: October 28, 2008
Economic Stimulus Proposals: The Data, Please
Economic stimulus is in the air. (Simon, in fact, is testifying on the subject before the Joint Economic Committee later this week.) Menzie Chinn at Econbrowser has a data-heavy post today on multipliers – the impact on GDP of in different types of stimulus (tax rebates, tax cuts, unemployment benefits, etc.). He concludes that the stimulus should include extended unemployment benefits, aid to state and local governments, and infrastructure spending. To the counterargument that infrastructure spending takes too long to have an impact, he shows multiple GDP forecasts, all tending to show a protracted recession (and, note, getting worse with each update). If you read one article about the stimulus, read this one.
(Like Simon argued in the National Journal, but with more data.)
Currency Crisis for Beginners
(One of our objectives is to help non-specialist readers understand what they are reading in the news. Instead of appending everything onto the very long Financial Crisis for Beginners page, I’m going to start doing individual posts and linking from that page to the posts. Advanced readers can choose to skip the “beginners” posts – or they can help improve them through comments.)
In honor of Paul Krugman, recent Nobel Prize winner and “inventor” of the currency crisis, we seem to be experiencing a global currency crisis. This may prompt the question: what is a currency crisis?
Different countries (or regions, like the Eurozone) use different currencies. These currencies generally float against each other, meaning that their relative prices are set by traders on foreign exchange markets, although sometimes they are fixed (meaning just that the central bank acts on the market to keep its exchange rate where it wants it). Changes in exchange rates are normal and are driven by a number of factors, such as interest rates in different countries: a higher interest rate creates demand for a currency, and as with most things higher demand leads to a higher price (meaning that currency has greater value). More generally, a currency’s value should be related to the long-term attractiveness of the economic opportunities available in that currency.
The Baseline Scenario 