Macroeconomics In Times Of Liquidity Crises: Searching For Economic Essentials

Hardcover | November 4, 2016

byGuillermo A. Calvo

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Since the subprime mortgage crisis that began in 2007, advanced economies have felt a nagging sense of insecurity. In parallel, the profession has witnessed phenomena that are alien to mainstream macroeconomic models. Financial crises are systemic, occurring simultaneously in different economies. In this book, Guillermo Calvo focuses on liquidity factors as a commonality in financial crises. Specifically, he examines the role of "liquidity crunch" in triggering crises. He also identifies a fundamental (but overlooked) idea in Keynes's General Theory, termed by Calvo the price theory of money, to rationalize the resiliency of the U.S. dollar when other dollar-backed assets suffered a devastating liquidity crunch.

Calvo shows that a sharp focus on liquidity reveals some characteristics of liquid assets that are easy to miss otherwise. He argues for liquidity's centrality, presenting what he calls the Liquidity Approach. He shows that simple extensions of standard monetary models help rationalize the implications of the liquidity crunch, and then examines slightly more technical models that highlight liquidity issues. He explores the empirical effects of liquidity crunch by studying systemic sudden stops (of capital inflows), presuming that they are triggered by liquidity crunch-type phenomena.

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Since the subprime mortgage crisis that began in 2007, advanced economies have felt a nagging sense of insecurity. In parallel, the profession has witnessed phenomena that are alien to mainstream macroeconomic models. Financial crises are systemic, occurring simultaneously in different economies. In this book, Guillermo Calvo focuses o...

Guillermo A. Calvo is Professor of International and Public Affairs at Columbia University's School for International and Public Affairs. He is the author of Money, Exchange Rates, and Output, Emerging Capital Markets in Turmoil (both published by the MIT Press) and other books.

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Format:HardcoverDimensions:264 pages, 8 × 5.38 × 0.5 inPublished:November 4, 2016Publisher:The MIT PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0262035413

ISBN - 13:9780262035415

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Throughout his distinguished career, Guillermo Calvo has always sought to uncover the deeper economic truths that surround us. With this book, he does it again! Calvo forces us to re-calibrate our intellectual frameworks to grasp some of the most important questions: What lies behind financial crises? Which macro stabilization policies should we pursue? What accounts for the structure of the international monetary system? He argues convincingly that liquidity plays a major role in all these phenomena. Intellectually stimulating, his new book opens new vistas for future research.