MIT Sloan Experts | Argentina's inflation rate deception

Tue, 16 Apr 2013 14:13:27 GMT

Alberto Cavallo, the Cecil and Ida Green Career Development Assistant Professor
of Applied Economics at the MIT Sloan School of Management, discusses how Argentina has lied about its inflation rate.

Moving Beyond Materiality: MIT Visiting Artist Tomas Saraceno

Wed, 28 Nov 2012 15:30:17 GMT

In this public lecture, MIT Visiting Artist Tomas Saraceno discussed the speculative context and experimental materials of his Cloud Cities with Nader Tehrani and Anton Garcia-Abril

Economic Policy Challenges: Macroeconomics and Fiscal Policy

Thu, 27 Jan 2011 05:00:00 GMT

01/27/2011 1:15 PM KresgeRicardo Caballero, PhD '88, Ford Professor of Economics and Department Head, MIT; Pedro Aspe, PhD '78, Co"Chairman, Evercore Partners and Chairman and CEO, Protego; Olivier Blanchard, PhD '77, Class of 1941 Professor of Economics, MIT and Chief Economist, International Monetary Fund; Paul Krugman, PhD'77, Professor of Economics and International Affairs; Woodrow Wilson School of Public and International Affairs, Princeton University; N. Gregory Mankiw, PhD '84, Robert M. Beren Professor of Economics, Harvard University; Christina Romer, PhD '85, Class of 1957 Garff B. Wilson Professor of Economics,; University of California, Berkeley; Robert Gordon, PhD '67, Stanley G Harris Professor of the Social Sciences, Northwestern UniversityDescription: These economists, MIT PhDs all, ponder what remains in the macroeconomist's toolkit to pull the U.S., and much of the developed world, out of recession. They discuss aspects of fiscal and monetary policy that may prove useful in spurring recovery, as well as the complicating matter of politics. IMF chief economist Olivier Blanchard describes a "two"speed recovery" around the globe, where emerging market countries like China and India are growing at a brisk clip of around 10%, and developed nations like the U.S. are lagging behind, with growth rates 3% and below. Stronger Eurozone states are struggling to prop up debt"laden Ireland and Greece. Blanchard hopes to avoid a larger European calamity by opening up the books of European banks to allay investors' fears and help recapitalize the banks at appropriate levels. The U.S. and China represent another hot spot for the IMF, with the U.S. running a vast current account deficit (due to years of high U.S. consumption and low household savings), and China a large current account surplus. Both nations want to reverse the situation, but their timetables differ radically. China fears increasing domestic consumption too rapidly and overheating its economy, so is thinking in terms of years. The U.S. wants faster action. If net exports do not improve in the U.S., says Blanchard, then it will be "confronted with a difficult choice: either it does fiscal consolidation, risking slowing growth, or continues large deficitsThere are reasons to think one might want to worry." Emerging markets "have learned lessons from previous crises," says Pedro Aspe, and are generally rebounding from the downturn. In Latin America, they have followed the lead of Chile, adopting an independent central bank, trade liberalization, pension reforms, and flexible labor markets. When they need a stimulus, they lower interest rates and keep public debt low. Aspe also raises red flags around debt and financing in the Eurozone: "You take more financing, and then the private sector knows this game wellThey squeeze economies. Face the debt overhang fast." Robert Gordon replaces the word overhang "with a more evocative word: hangover." The U.S. economy is still weighed down by consumer liabilities, although the household savings rate has improved. There remains an oversupply of residential housing and nonresidential structures, and continued unemployment, only to worsen as state and local governments shed more workers. "What do we do?" he asks repeatedly. "Monetary policy is out of steam." On fiscal policy, Gordon says, "We have to pretend we're a benevolent dictator and ignore political paralysis." He recommends cutting corporate income tax, extending unemployment compensation and making food stamps more generous. He also endorses a new jobs tax credit, but admits it will be "hard to design." Paul Krugman confesses having "nightmares for about a decade before this thing actually happened." What is "worse than he anticipated" is the "apparent inability of policy to come to grips with this." Our paralysis has arrived in part because "we've run into the limits of Samuelsonian synthesis." The traditional levers of monetary and fiscal policy to correct minor market failures have failed. The academic consensus around Keynesian economics has broken, making it less possible to "push through the strong policies you really need at a time like this." This leaves an opening for people "who really believe government should keep its hands off," who don't believe in the need for monetary policy "to be adventurous and unconventional just to avoid utter catastrophe." In addition, "a prolonged period of financial stability" made people careless, leading to mountains of debt. The resulting financial crisis demands aggressive fiscal policies that are politically impossible. "If you'd asked me five years ago what would happen if the U.S. had unemployment in excess of 9% and every prospect of continued high unemployment levels, I'd have said there would be overwhelming political demand for government to do something. In fact there isn't. We have had a near collapse of the idea that government can do anything about this." N. Gregory Mankiw describes how times of economic crisis periodically challenge macroeconomists' consensus of how the business cycle works, and how to fix it when it breaks. In the past few years, "the rock has rolled back to the bottom of the hill." Mankiw believes he and fellow macroeconomists "need to be humble" and "recognize there are a lot of things we don't know." For instance, the conventional take was that monetary policy was the main tool for dealing with recession: cut interest rates, stimulate borrowing and investment, increase aggregate demand. But today, the Fed cannot realistically lower its interest rate below zero. If he tried to increase target inflation rates, Ben Bernanke would "soon be former chairman," says Mankiw, who finds the long"term fiscal picture "extremely worrisome." The administration's last budget "has debt to GDP ratio rising as far as the eye can see." Without major reforms on entitlements and the tax code, there must be another revenue source, and Mankiw "is expecting a value added tax." "In my heart, I feel deeply that actions taken in the last two years were incredibly effective and played a role in the recovery we're seeing," says Christina Romer, a forceful advocate for such strong fiscal policy as the administration's $787 billion stimulus package. Legislation passed during the recent lame duck session of Congress should help blunt the loss of stimulus money. Nevertheless, the "U.S. economy is still suffering from a tremendous shortfall of aggregate demand," with factories and workers unoccupied. She worries that policymakers' anxiety about the long"run fiscal deficit will prevent the kind of immediate measures "we desperately need," that would jumpstart recovery. She argues for "high quality additional fiscal stimulus coupled with a signed, sealed and delivered agreement for deficit reduction starting in 2012 or 2013." This agreement would tackle "the true driver of the deficit, long"run entitlement spending on Social Security and Medicare," and "must surely raise additional revenue." About the Speaker(s): Ricardo J. Caballero is also a National Bureau of Economic Research (NBER) research associate in economic fluctuations and growth. A native of Chile, he received his B.S. and M.A. in economics from the Pontificia Universidad Catlica de Chile and his Ph.D. from MIT. His academic interests are macroeconomics, international economics, and finance. His current research focuses on global capital markets, speculative episodes and financial bubbles, systemic crises prevention mechanisms, and dynamic restructuring. Caballero is a Fellow of the American Academy of Arts and Sciences, and of the Econometric Society. He has been a visiting scholar at the European Central Bank, the Federal Reserve Board, the Inter"American Development Bank, the International Monetary Fund, and the World Bank, among other institutions. His work has been published in prominent economics journals.Host(s): Office of the President, MIT150 Inventional Wisdom

The Evolution of Economic Science: Macroeconomics, Growth, and Development

Thu, 27 Jan 2011 05:00:00 GMT

01/27/2011 10:45 AM KresgeDaron Acemoglu, James Killian Professor of Economics, MIT; Peter Diamond, PhD '63, MIT Institute Professor; Esther Duflo, PhD '99, Abdul Latif Jameel Prof of Poverty Allev & Develop Department of Economics; Robert Hall, PhD '67, Robert and Carole McNeil Professor of Economics and Senior Fellow, Hoover Institution, Stanford University; Robert M. Solow, MIT Institute Professor, Emeritus 1987 Nobel Laureate in EconomicsDescription: This panel first looks inward, at the evolution of macroeconomics in the past century, and the emergence of microeconomic foundations in macroeconomics, then shifts outward, to the application of economic analysis to such issues as structural unemployment, the ongoing U.S. recession, and the best ways to help developing nations. When he took his first economics course in 1940, Robert Solow tells us, "There was no such thing as macroeconomics." The general framework for discussing large"scale fluctuations in economies , "born in Keynes' general theory in 1936," took a while to evolve. Keynes, says Solow, wanted a "macroeconomics that would keep closely in touch with data and with actual events." From the 1950s through the 1970s, macroeconomics "was all Keynesian," but there was "lots of room for ideology to be dragged in." A sea change occurred in the late '70s, driven by stagflation. Macroeconomists could not explain the phenomenon, providing an opening "for opponents of this way of doing macroeconomics." After the '70s, "paying close attention to events got to be a bad thing," says Solow. Some economists declared it was time to erase the distinction between macro and microeconomics, but says Solow, "You can't answer the questions macro has asked by modeling whole economies as the interaction of tens of millions of households, firms and products It's like trying to design an airplane molecule by molecule." Peter Diamond was part of a generation of researchers in the 1960s who hoped to construct a micro foundation to macroeconomics. In particular, he worked to incorporate into the basic general equilibrium model two Keynesian ideas that didn't fit so comfortably: the significance of current income, and "the stickiness of wages." Economists explored how the labor market functioned in the economy, and learned to model vast flows of workers moving in and out of employment. Analyzing such flows helps inform policy discussions about unemployment insurance, says Diamond. While these approaches have been incorporated into "otherwise conventional macro models," he looks forward to "a big expansion of range of micro foundation models that will be consistent with the general equilibrium views of thinking about the whole economy, and Keynesian views that we get events that really affect things." Robert Hall defends economists attacked for not predicting "the big slump." Says Hall, "We did a lot of research that turned out to be highly material." He boils down the financial crisis to such factors as deregulation of financial institutions, a massive build"up of consumer debt and the overshooting of housing prices. Financial fallout from the 2008 crisis continues today: credit card interest rates remain high, and available credit is extremely restricted, impeding recovery. The Federal Reserve's hands are tied, because it can't lower interest rates anymore; "the normal equilibrium process of the economy fails in a situation like this," says Hall. Paradoxically, a little inflation would be good, because it might "get people to perceive that now is a great time to buy stuff instead of later." Over the next four years, Hall believes unemployment will get back to normal, and households will work down accumulated debt. He frets that current legislation has "only scratched the surface" of correcting the regulatory lapses that triggered the crisis. Says Hall, "We need robust financial institutions with lots of capital." For years, people have debated the effectiveness of aid to developing nations. Development economics is trying "to move away from big questionsto smaller questions for which we might possibly have the answer," says Esther Duflo. She studies the economics of public health aid in poor countries, where diseases like malaria are responsible for millions of deaths. Even where the benefits of aid are clear, there are still "heated arguments, ideology and passion." Studies by Duflo and her colleagues have largely quieted concerns that people offered free health services such as bed nets for malaria, or immunizations, decline them, or after receiving them, refuse to purchase subsidized healthcare in the future. This research is changing policies: Kenya has begun distributing bed nets for free, for instance. Small investments in health pay large dividends. Duflo cites a study that school children who are de"wormed for a year longer than their peers earn 20% more each year when they are adults. "A patient step"by"step approach is a productive way of trying to understand how the poor behave and how we can possibly help them get out of poverty traps." About the Speaker(s): Daron Acemoglu studies political economy, economic development and growth, technology, income and wage inequality, human capital and training and labor economics, among other fields. He has taught economics at MIT since 1993. Previously, Acemoglu was a lecturer in economics at the London School of Economics, where he also received his M.Sc. and Ph.D. Acemoglu is a fellow of the Society of Labor Economists, a fellow of the American Academy of Arts and Sciences, a fellow of the Econometric Society and a fellow of the European Economic Association. He is the author of Introduction to Modern Economic Growth.Host(s): Office of the President, MIT150 Inventional Wisdom

The ECB Perspective of the Financial Crisis

Thu, 25 Mar 2010 16:25:48 GMT

Evangelos is currently deputy head of the Risk Management Division in the European Central Bank (ECB). Since January 1, 1999, the ECB has been responsible for conducting monetary policy for the Euro area--the world's largest economy after the United States. The ECB's primary objective is to maintain the euros' purchasing power and thus price stability in the Euro area. The Risk Management Division in the ECB is responsible for managing the financial risks of the full range of the ECB's market operations. These tasks include market, credit, and liquidity risk management for the asset management activities of the ECB's investment portfolios, consisting of about of EUR50 billion in foreign reserves and gold holdings and about EUR10 billion in Euro-denominated assets under active management. In addition, the Division manages the risks of the Eurosystem's credit operations, the operations providing liquidity to the banking system in the Euro area, which amounted to EUR830 billion at the end of 2008. This task includes the monitoring of the credit assessment and valuation of over EUR11 trillion of assets eligible to collateralise these operations. This presentation was given on October 10, 2009. View the keynote speech from this event, which was given by Jon Moynihan SM '77.

An Entrepreneur's Perspective of the Financial Crisis

Thu, 25 Mar 2010 16:21:33 GMT

Manuel Sosna is one of the three founders of ubitexx GmbH and was responsible for finance, key account management and marketing from 2002 to April 2009. Now he supports ubitexx, among other companies, as a management consultant. Manuel talks here about how the financial crisis has affected his company. This presentation was given on October 10, 2009. View the keynote speech from this event, which was given by Jon Moynihan SM '77.

A Banker's perspective of the financial crisis

Mon, 22 Mar 2010 14:38:51 GMT

Jürgen Schlangenotto joined BNP PARIBAS in September 2008 as managing director, corporate and investment banking taking care of the portfolios of a number of major German DAX-Companies. BNP Paribas is the largest bank in the Euro Zone by total assets and second largest by market capitalization. It ranks 5th in the banking industry worldwide. It employs 205,000 people, of whom 165,000 work in Europe, and maintains a presence in 87 countries. The bank is active in the finance, investment, and asset management markets. Jürgen talks here about the causes and effects of the financial crisis from a banking perspective.

This presentation was given on October 10, 2009. View the keynote speech from this event, which was given by Jon Moynihan SM '77.

A Middle East perspective of the financial crisis

Fri, 19 Mar 2010 20:11:27 GMT

Abdullatif A. Al-Othman is Saudi Aramco's senior vice president of finance business line, which covers the controllers, treasurers, and the general auditing functions. Abdullatif talks here about how the financial crisis has affected his business and the Middle East. This presentation was given on October 10, 2009. View the keynote speech from this event, which was given by Jon Moynihan SM '77.

Econ. decline of West: 3.Future (HD)

Tue, 08 Dec 2009 23:03:26 GMT

Jon Moynihan, Chairman of PA Consulting Group's keynote speech to the MIT Club of Germany in Frankfurt on October 10, 2009, covering financial crisis, causes, implications and desirable actions. Follow on from Jan 22 speech in London. Part 3: The future

See also
Watch panel presentations from this Oct. 2009 event: The Financial Crisis--Repercussions and Remedies

Economic decline of West: 1.Intro (HD)

Tue, 08 Dec 2009 21:38:53 GMT

Jon Moynihan, Chairman of PA Consulting Group's keynote speech to the MIT Club of Germany in Frankfurt on October 10, 2009, covering financial crisis, causes, implications and desirable actions. Follow on from Jan 22 speech in London. Part 1: Introduction.

See also
Watch panel presentations from this Oct. 2009 event: The Financial Crisis--Repercussions and Remedies

Economic decline of West: 5.Q&A (HD)

Tue, 08 Dec 2009 14:35:25 GMT

Jon Moynihan, Chairman of PA Consulting Group's keynote speech to the MIT Club of Germany in Frankfurt on October 10, 2009, covering financial crisis, causes, implications and desirable actions. Follow on from Jan 22 speech in London. Part 5: Discussion

See also
Watch panel presentations from this Oct. 2009 event: The Financial Crisis--Repercussions and Remedies

Econ. decline of West: 4.Actions (HD)

Mon, 07 Dec 2009 21:59:10 GMT

Jon Moynihan, Chairman of PA Consulting Group's keynote speech to the MIT Club of Germany in Frankfurt on October 10, 2009, covering financial crisis, causes, implications and desirable actions. Follow on from Jan 22 speech in London. Part 4: Desirable actions

See also
Watch panel presentations from this Oct. 2009 event: The Financial Crisis--Repercussions and Remedies

The U.S. and the World's Recession

Sat, 07 Jun 2008 04:00:00 GMT

06/07/2008 9:00 AM E51"115Roberto Rigobon, PhD '97, Professor of Economics; Description: Roberto Rigobon somehow makes his audience laugh while summarizing preliminary research on worldwide inflation and recession, data that bring some grim tidings about our global economic state of health. (NB: Argentina and France get knocked about a bit in this talk.) By pulling favors with friends at central banks, Rigobon has gathered data on the prices of every conceivable product from dozens of nations over many years, from the clothes we wear to the cars we drive. He searches for correlations between the changes in price of major commodities, such as wheat and rice, and price changes in domestic retail items associated with them, such as bread, pasta and cookies (the latter he admits are of special concern to him). He calculates both how much the increases are and how long it takes for the price increases to occur. In a similar fashion, Rigobon has charted the international price of oil over time, and the domestic prices of oil products. Some of Rigobon's findings: In Chile, when the price of wheat goes up by 10%, the price of bread goes up by 5% 18 months later. In Colombia and Peru, it takes three years for this same percentage increase to occur, with these countries taking longer "to digest the international shock of commodity prices." Not only do the prices of bread, cookies, meat, chicken, move in lockstep with wheat, but in some cases, so do housing, health and education. But Rigobon found that when the international price of oil increases, there is an immediate impact on all products related to oil. What's worse, when the price of oil increases, the price of gas at the pump or for a rental car goes up disproportionately. It's been true for years, notes Rigobon, that "oil is unconditionally negatively correlated with cereals." If oil is up, maize, sorghum and wheat prices are down. But this has recently changed, a sign "of the unique times we're in, the policy challenges we're facing." We are simultaneously facing recession (due in large part to the sub"prime mortgage crisis), and inflation, in both food and oil prices. Central banks, he notes with scorn and wonderment, don't include food and energy in their calculations of "core inflation." If the job of these banks and government is to take care of their citizens, they must respond to this crisis along the lines of the response to 9/11 or Enron. Rigobon endorses well"communicated, transparent policies, and some tough measures like interest rate increases. About the Speaker(s): Roberto Rigobon researches international economics, monetary economics, and development economics. He is a faculty research fellow of the National Bureau of Economic Research, and a visiting professor at IESA, Venezuela. He joined Sloan in 1997 and has twice won the "Teacher of the Year" award and the "Excellence in Teaching." He received his Ph.D. in economics from MIT in 1997, an M.B.A. from IESA (Venezuela) in 1991, and his B.S. in Electrical Engineering from Universidad Simon Bolivar in Venezuela. Host(s): Sloan School of Management, MIT Sloan School of Management

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