Barry Eichengreen Research Articles

Inconvenient glow: cliometrics and the "golden age" of capitalism

This paper aims to criticize the recent cliometrics literature on the so-called "golden age" of capitalism. The works of Nicholas Crafts, Gianni Toniolo, and Barry Eichengreen are reconstructed in order to reveal the main characteristics of this research program. Its narrow quantitative focus, its reliance on theoretical propositions borrowed from neoclassical economics, and its auspicious interpretation of the postwar reconstruction are the main focus of the criticism presented. Finally, the cliometricians' attempt to historicize the "golden age" and de-historicize the following decades is related to the ideological understanding of the recent decades as a period of "great moderation."

Comment on “The Eurozone Crisis: Phoenix Miracle or Lost Decade?”

This comment discusses the paper “The Eurozone crisis: Phoenix miracle or lost decade?” by Barry Eichengreen, Naeun Jung, Stephen Moch, and Ashoka Mody, which was presented at the Bank of Greece Conference in May 2013.

From Miracle to Maturity: The Growth of the Korean Economy by Barry Eichengreen, Dwight H. Perkins, and Kwanho Shin, Cambridge, MA: Harvard University Asia Center, 2012, xiv + 366 pp.

From Miracle to Maturity: The Growth of the Korean Economy by Barry Eichengreen, Dwight H. Perkins, and Kwanho Shin, Cambridge, MA: Harvard University Asia Center, 2012, xiv + 366 pp.

Barry Eichengreen, Exorbitant Privilege. The Rise and Fall of the Dollar and the Future of the International Monetary System

Out of Barry Eichengreen’s books, this is the one that is most likely to be made into a Hollywood screenplay. It reads like a novel. The first chapter begins with the story of World War II concentration camp survivor Salomon Sorowitsch sitting on a beach holding a suitcase full of dollars of dubious provenance, which he hopes to launder and enlarge, in the casinos of Monte Carlo, as depicted in the movie The Counterfeiters. The second chapter begins with the story of English religious disside...

How housing slumps end

We construct a simple model of the end of housing slumps. We show that the probability that real housing prices stop falling is higher the smaller was the pre-slump house price run-up; the greater has been the cumulative house price decline, the faster is GDP growth, and, most importantly, the lower are mortgage interest rates. Slumps are longer where the construction sector is more responsive, allowing booms to create larger supply overhangs, but shorter the more developed are financial markets and institutions, enabling new buyers to access credit and enter the market. Falling house prices can lead to lower private sector credit flows, in turn limiting the scope for new home purchases and creating the danger of a vicious spiral of slumping housing prices and distressed financial institutions. This suggests that policymakers should take steps to break the link between the housing market problems and banking problems by intervening to recapitalize distressed banking systems while using quantitative easing and credit easing to lower mortgage interest rates and help revive the housing market directly. — Agustin S. Benetrix, Barry Eichengreen and Kevin H. O'Rourke

Book Reviews

Alberto Giovannini of Unifortune Asset Management reviews “Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System” by Barry Eichengreen. The EconLit abstract of the reviewed work begins, “Explores the rise of the U.S. dollar to international prominence over the course of the twentieth century and considers what actions the United States can take to prevent it from losing its dominance. Discusses debut; dominance; rivalry; crisis; monopoly no more; and the dollar crash. Eichengreen is Professor of Economics and Political Science at the University of California, Berkeley. Index.”

IT MAY BE OUR CURRENCY, BUT IT'S YOUR PROBLEM

The dollar's dominance of international transactions and role as a reserve currency is an exorbitant privilege that is a burden as well as a blessing for the US. It achieved this dominance early in the twentieth century, quite quickly in fact; it may also see that status change equally quickly were the world to move to a multipolar system of currencies. Among the most likely candidates for reserve currencies in such a world are the dollar, the euro, and the Chinese renminbi, Barry Eichengreen explained in his Butlin Lecture earlier in 2011.

Hedge Funds and Asian Crisis: A Perspective of Hot Money and Structural Deficiencies

The Asian financial crisis (1997) was one of the worst financial crises in Asia and has raised concerns not only for the future of region’s economy but also of the world economy as a whole. Though Asian crisis was centered only in South Asia but its impact was so deep that its reverberations were felt in the whole world. Asian financial crisis became a moot point and in recent subprime crisis policy makers tried to take lessons from it. In one of the articles recently published, it was quoted “The catchphrases may be different, but there are many similarities between the 1997 Asian financial crisis and today's.More than ten years have passed since the crisis but the real reasons for crisis are still debatable as different scholars have different views on it. One view suggests inherent weakness in the domestic structural factors of the economies was responsible for the crisis. This includes weak banking system, lack of adequate laws and regulations, and also the absence of strong supervision and enforcement of prudential regulation. Another view suggests that short term capital flows were more responsible for it. South Asian economies were the preferred destination for global investors because of high interest rates and therefore attractive to investors considering higher rates of return. There was a large influx of money and soaring asset prices. The South Asian economies were inflated with this short term capital which was expensive and conditioned on quick profits.As far as short term investments are concerned, investment funds and especially Hedge Funds were criticized during and after Asian crisis owing to their unregulated nature and near collapse of Long Term Capital Management. The idea that hedge funds were responsible for crisis was also supported by political figures. Dr Mahathir, the then Malaysian Prime Minister, in one of the statements published in the Wall Street Journal on September 23, 1997 remarked.“Whole region can be bankrupted by just a few people whose only objective is to enrich themselves and their rich clients....”The analysis of hedge funds with respect to the Asian financial crisis is important because some scholars still believe that hedge funds were primarily responsible for the crisis. After crisis two major international studies were conducted to ascertain the role of hedge funds in crisis. The first was the IMF study “Hedge Funds and the Financial Markets dynamics” led by Barry Eichengreen and Donald Methieson and published in May 1998. According to this, hedge funds were small entities of a very large system and it is misguided to blame them. Another major international report was written by FSF Working group on Highly Leveraged Institutions and published in 2000. According to this, hedge funds and proprietary trading desks have the potential to destabilize financial markets. Thereafter several studies were conducted by world bodies like IMF but there is no consensus on the real causes till date. According to IMF, South East Asian economies were experiencing a huge inflow of money and from 1990 to 1995, financial intermediaries invested somewhere around $20 billion in these economies and in 1996 this amount had dramatically increased to $45 billion per annum. Then with the collapse of Thai Baht and Malaysian Ringitt, there was a sudden outflow of $58 billion which created a chain reaction and currencies of other nations also started falling. But the question is that South East Asian economies which were experiencing high growth before 1997 faced economic crisis only because of outflow of money; or this outflow acted as catalyst in the already existing weak and fragile domestic structural factors.The paper will begin with an analysis of events leading to the Asian financial crisis. From there, it will discuss the presence of hedge funds and their activities in Asia. Based on this discussion, it will analyze whether there was significant presence of hedge funds to destabilize Asian markets.

The Sovereign Debt Crisis in Europe, Save Banks Not States

Abstract The European central bank is a bank of banks but not a bank of states. This reduces the capabilities of member states to finance deficits. The role of the central bank to cope with the debt crises is institutionally more limited than in most other Western countries. The European Stability Mechanism has not enough financial power to bail out all distressed countries in the Eurozone. Eurobonds could increase lending capacities but would require a change of the European treaty, which is not in sight. They violate the no bail out clause of Art.125 of the Treaty on the Functioning of the European Union. The policy option is therefore debt restructuring of distressed countries and a bailout of financial institutions to avoid conflagration. This option would also shift some of the burden to creditors outside the Eurozone rather than to shift all risk on the people in solvent countries within the Eurozone. JEL classification: G01, K33 Keywords: Euro, European debt crisis, European Central Bank, European Stability Mechanism, Debt restructuring, Sovereign insolvency, no bail out clause, Eurobonds 1. Why the Euro? What is the economic rationale for the Euro? Some economists, Paul Krugman the most prominent among them, maintain that there is no rationale at all and view the Euro as a purely political and even romantic project for a disparate economic zone for which a single currency fits like the saddle on the cow2. If they are right, the Euro cannot and should not survive and hence the best strategy to end the current crisis would be to reintroduce national currencies. This would allow troubled countries to devaluate their currencies and thus regain international competitiveness. However others, including Barry Eichengreen, one of the most knowledgeable observers of the European Union and its financial architecture think differently. In his article in the Journal of Economic Literature Eichengreen maintains that the introduction of the Euro was a consequent move after the establishment of the single European market. The European Union is not just a customs union but also a free market for services, capital and labor. The European treaties, the large body of secondary law and the decisions of the European Court of Justice have removed even the most remote barriers to the entry of national markets. No other collection of states has achieved this depth of market integration. The downside of this is an inherent vulnerability to sudden exchange rate changes in member countries, which can have major disruptive effects. This consequence of the single European market led to the introduction of the European exchange rate mechanism with almost fixed exchange rates as early as 1979. But with different inflation rates within the EU this mechanism was unstable. In 1992 both Britain and Italy heavily devaluated their currencies. This led to disruptions in the industries of other member states with huge layoffs of workers and a devaluation of the capital stock in export as well as import substituting industries. The consequence of this experience was the decision to take the risk of a common currency, in which such disruptions for investors and workers cannot occur3. Without the Euro it is questionable whether the deep market integration is sustainable. It might have to give way to a form of integration closer to what we have in the GATT/WTO framework. Just to illustrate: In Greece a newly appointed schoolteacher with a University degree currently earns a salary of little less than 1000 Euro per month and 80 per cent of employees in the public sector earn between 1000 and 15000 euros4. Assume that Greece would reintroduce the Drachma and devaluate it by 50 per cent as analysts forecast for that scenario. The salary would then decline to less than 500 Euro per month. This might lead to massive emigration like in neighboring countries Bulgaria and Romania, or in Poland, which are EU member states but not part of the Euro zone. …

Labor in the era of globalization

Introduction Clair Brown, Barry Eichengreen and Michael Reich Part I. Political Economy and Labor Market Institutions: 1. Institutions and wages in post-World War II America Frank Levy and Peter Temin 2. American exceptionalism and comparative political economy David Soskice 3. Finance and labor: perspectives on risk, inequality, and democracy Sanford Jacoby Part II. Institutions and Firm and Worker Behavior: 4. How good are U.S. jobs? Characteristics of job ladders across firms in five industries Clair Brown, Benjamin Campbell, Fredrik Andersson, Hyowook Chiang and Yooki Park 5. Increasing labor flexibility in Japan: the role of female workers in manufacturing Yoshi-Fumi Nakata and Satoru Miyazaki 6. Ties that matter: cultural norms and economic behavior in Western Europe Paola Giuliano Part III. Contemporary Labor-Management Relations: 7. The new treaty of Detroit: are VEBAs labor's way forward? Teresa Ghilarducci 8. Symphony musicians and symphony orchestras Robert J. Flanagan 9. Wage effects of works councils and collective agreements in Germany Knut Gerlach and Wolfgang Meyer 10. Apprentice strikes, pay structure and training in twentieth-century UK metalworking industry Paul Ryan Part IV. Public Policy and U.S. Labor Market Structure: 11. Minimum wages in the U.S.: politics, economics and econometrics Michael Reich 12. Understanding the causes and labor market consequences of the steep increase in U.S. incarceration rates Steven Raphael 13. Local labor market adaptation to increased immigration David Card.

Toward a More Managed International Monetary System?

For the first time in modern history, leading emerging nations have a real chance to shape the evolution of the world economy. Key actors in this scenario are the BRIC countries - Brazil, Russia, India, and China - whose growing presence on the global stage has been the defining feature of the world economic landscape in the early 21st century. Backed by rapid economic growth, growing financial clout, and a newfound sense of assertiveness in recent years, the B RICs are a driving force behind an incipient transformation of the world economy away from a U S -dominated system toward a multipolar one in which developing countries will have a major say. Meanwhile, increasing economic cohesion in Europe - particularly among the 16 member states of the euro area - is a separate source of pressure on the international governance structure. Both the BRICs and the euro area will contribute to the continued evolution of the international monetary system as they work to strengthen their relative positions and mould the system to their purposes.It is true that multipolarity is not evident in all aspects of contemporary international relations. In politics, where much of the discussion has been focused, the debate centres on nonpolarity, in which numerous concentrations of power exist with no single centre dominating - a viewpoint forcefully argued by Richard Haass.1 In trade, multilateralism reigns, in the sense that a formal framework of rule-making and compliance has emerged from successive rounds of trade liberalization under the aegis of the World Trade Organization. However, the stalling of the current Doha round of international trade negotiations shows the challenges that multilateralism feces in contentious areas, such as agricultural subsidies and services, where the interests of developed and developing countries diverge. In the international monetary arena, the notion of bipolarity or multipolarity - the existence of two or more dominant poles - also stimulates vigorous debate. Some, such as Barry Eichengreen, argue that there is no substitute for the US dollar at the top of the international monetary system.2 This position, however, ignores the recent dramatic shifts in relative economic power and the deep interdependencies between the United States and other major players. Broadly speaking, important decisions regarding the international monetary system must now account for the interests of Europe and fastgrowing emerging market countries (the BRICs for certain, but for some purposes also such countries as Korea, Mexico, and Saudi Arabia). In our view, the debate has been wrongly defined: the issue is not whether other national currencies will take over from the dollar, but instead whether the international monetary system will once again be managed at the global level - as it was under Bretton Woods - rather than being the result of uncoordinated actions of member governments. The BRICs have laid down a powerful challenge to the existing system, where US hegemony persists in a laissez-faire world of flexible exchange rates and monetary policies focused on domestic objectives. They argue that some international currency - managed not by a single country but by international agreement - should eventually supersede the current unmanaged, dollar-dominated international monetary system.Though they are rivals in some respects, the three emerging poles - the United States, the euro area, and the BRICs - share a common interest in maintaining financial stability and facilitating trade and economic growth. Trade and investment between the three of them account for a large part of global flows. About one quarter of US exports go to the euro area and a similar amount to the BRIC countries, while 16 percent of total BRIC exports go to the United States and 29 percent to the euro area. Dense crossborder foreign direct investments have created strong mutual interests and interdependencies. American multinationals hold more than one third of their total direct overseas investments in companies located in the euro area, and European banks have established a strong presence in the BRICs through extensive networks of subsidiaries and branches. …

From Great Depression to Great Credit Crisis: similarities, differences and lessons

The Great Depression of the 1930s and the Great Credit Crisis of the 2000s had similar causes but elicited strikingly different policy responses. While it remains too early to assess the effectiveness of current policy, it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies. We employ vector autoregressions, instrumental variables, and qualitative evidence for 27 countries in the period 1925–39. The results suggest that monetary and fiscal stimulus was effective -- that where it did not make a difference it was not tried. They shed light on the debate over fiscal multipliers in episodes of financial crisis. They are consistent with multipliers at the higher end of those estimated in the recent literature, and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound. — Miguel Almunia, Agustin Benetrix, Barry Eichengreen, Kevin H. O’Rourke and Gisela Rua

The rise and fall of the dollar (or when did the dollar replace sterling as the leading reserve currency?)

Much as Paul David described the invention of the mechanical typewriter – it was invented 51 times before being patented by Christopher Sholes in 1867, licensed to the Remington Company and successfully commercialized – the connections between the gold-exchange standard and the Great Depression have been discovered repeatedly. They were discovered by Ehsan Choudhri and Levis Kochin in a seminal article in 1980. They were discovered by Barry Eichengreen and Jeffrey Sachs in articles published in 1985 and 1986. They were discovered by James Hamilton in an insightful article published in 1988. They were discovered by Peter Temin in his Robbins Lectures published in 1989. They were discovered by the now chairman of the Federal Reserve Board in his 1994 Journal of Money Credit and Banking Lecture. Moreover, these contributors to the contemporary literature had important antecedents, including Robert Triffin in the 1950s, Ragnar Nurkse in the 1940s, and Leo Pasvolsky in the 1930s.

The European economy in an American mirror - Edited by Barry Eichengreen, Michael Landesmann, and Dieter Stiefel

The Economic History ReviewVolume 61, Issue 4 p. 1025-1027 The European economy in an American mirror – Edited by Barry Eichengreen, Michael Landesmann, and Dieter Stiefel Alan Booth, Alan Booth University of Exeter in CornwallSearch for more papers by this author Alan Booth, Alan Booth University of Exeter in CornwallSearch for more papers by this author First published: 26 September 2008 https://doi.org/10.1111/j.1468-0289.2008.00447_23.xRead the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Volume61, Issue4November 2008Pages 1025-1027 RelatedInformation

New Actors in a Financialised Economy and the Remaking of Capitalism

The term capitalism comes with a great deal of anachronistic, non-reflexive, non-deconstructed baggage. The ‘c word’ evokes the idea of a reified system with an immanent inner principle so that cap...

Global imbalances and the lessons of Bretton Woods – By Barry Eichengreen

Global imbalances and the lessons of Bretton Woods – By Barry Eichengreen

The International Financial Architecture and the Limits to Neoliberal Hegemony

Unlike neoliberalism, [the] new financial architecture recognises the limits of a disembedded global economy. Yet, rather than seeking to rein in the forces of liberalisation by re-embedding intern...

Introduction: The International Diffusion of Liberalism

Political scientists, sociologists, and economists have all sought to analyze the spread of economic and political liberalism across countries in recent decades. This article documents this diffusion of liberal policies and politics and proposes four distinct theories to explain how the prior choices of some countries and international actors affect the subsequent behavior of others: coercion, competition, learning, and emulation. These theories are explored empirically in the symposium articles that follow. The goal of the symposium is to bring quite different and often isolated schools of thought into contact and communication with one another, and to define common metrics by which we can judge the utility of the contending approaches to diffusion across different policy domains.For helpful comments on an earlier draft of this article, the authors wish to thank Barry Eichengreen, Lisa Martin, and John Meyer. Nancy Brune and Alexander Noonan provided excellent research assistance. The authors also wish to acknowledge and thank the Yale Center for International and Area Studies, the UCLA International Institute, and the Weatherhead Center for International Affairs at Harvard University for funding conferences at which this collection of symposium papers were discussed.

The international monetary system in the last and next 20 years

The last two decades have seen far-reaching changes in the structure of the international monetary system. Europe moved from the European Monetary System to the euro. China adopted a dollar peg and then moved to a basket, band and crawl in 2005. Emerging markets passed through a series of crises, leading some to adopt regimes of greater exchange rate flexibility and others to rethink the pace of capital account liberalization. Interpreting these developments is no easy task: some observers conclude that recent trends are confirmation of the ‘bipolar view’ that intermediate exchange rate arrangements are disappearing, while members of the ‘fear of floating school’ conclude precisely the opposite. We show that the two views can be reconciled if one distinguishes countries by their stage of economic and financial development. Among the advanced countries, intermediate regimes have essentially disappeared; this supports the bipolar view for the group of countries for which it was first developed. Within this subgroup, the dominant movement has been toward hard pegs, reflecting monetary unification in Europe. While emerging markets have also seen a decline in the prevalence of intermediate arrangements, these regimes still account for more than a third of the relevant subsample. Here the majority of the evacuees have moved to floats rather than fixes, reflecting the absence of EMU-like arrangements in other parts of the world. Among developing countries, the prevalence of intermediate regimes has again declined, but less dramatically. Where these regimes accounted for two-thirds of the developing country subsample in 1990, they account for a bit more than half of that subsample today. As with emerging markets, the majority of those abandoning the middle have moved to floats rather than hard pegs. The gradual nature of these trends does not suggest that intermediate regimes will disappear outside the advanced countries anytime soon. — Barry Eichengreen and Raul Razo-Garcia

Comments and Discussion

Comments and Discussion Barry Eichengreen and Jeffrey A. Frankel Barry Eichengreen: The first rule of forecasting is, "Give them a forecast or give them a date, but never give them both."1 Michael Dooley and Peter Garber have given us a forecast, namely, that the dollar will fall and U.S. Treasury yields will rise. Bravely, they have also given us a date. Unfortunately for those of us interested in the future, that date is 1971. Like Dooley and Garber, I agree that what cannot go on forever generally will not. But unlike them I do not believe that recent events in financial markets can help us pin down the timing. The middle of March, just before the Brookings Panel meeting, saw an increase in noise about the possibility that foreign central banks might diversify out of dollars. The governor of the Bank of Korea made some widely reported comments about the need for more-active reserve management. Prime Minister Junichiro Koizumi of Japan told a parliamentary committee that reserve diversification was "necessary."2 Y. V. Reddy, governor of the Reserve Bank of India, said that the diversification of reserves was under active discussion.3 Ukrainian economy minister Sergiy Teriokhin argued publicly that the country should diversify its reserves out of dollars and into euros.4 This upsurge in noise was associated with an eight-month high in Treasury yields, reinforcing the belief that reserve diversification could eventually force the dollar down and Treasury yields up. At the same time, that eight-month high in Treasury yields was not all that high. I would acknowledge that this is a troubling point. I am not alone, of [End Page 188] course: Federal Reserve Chairman Alan Greenspan has commented on this issue extensively, to the point where it is now known as the Greenspan conundrum. Factors invoked to help explain it include the relatively short supply of new long-term Treasury debt coming onto the market as the debt managers at the U.S. Treasury shorten maturities, and the inelastic demands of various institutional investors for government securities. In Dooley and Garber's view, the proper interpretation is that financial market participants are attaching a positive probability to Asian central banks continuing to support the dollar by making massive purchases of Treasury bonds. This is the substance of the first of the authors' three notes. Who am I to second-guess the markets, much less to second-guess our esteemed authors? Well, I'm an economic historian who can recall a substantial number of previous episodes where major imbalances leading to sharp changes in exchange rates were not obviously factored into financial markets until immediately before the event. For example, the January March 1933 run on the dollar, a suggestive precedent, had virtually no discernible impact on interest rate differentials or forward exchange rates until almost immediately before it occurred, despite the fact that the possibility had been actively discussed for the better part of a year.5 The 1992 attacks on the pound sterling, a currency that commentators regularly cited as ready for a fall, were similarly not preceded by the emergence of noticeable interest rate differentials or a forward discount in the foreign exchange market until a couple of weeks before the denouement.6 Particularly interesting, given the context, is that in 1968-71, in the run-up to the collapse of the Bretton Woods system, the forward discount on the dollar was very modest, as was the interest rate differential between the United States and Germany.7 Then, in the summer of 1971, the forward discount jumped upward. Although one can always ascribe such behavior to the arrival of new information, it is not as if people failed to see the collapse of the Bretton Woods system and a substantial devaluation of the dollar coming. To the contrary, there was an immense contemporary literature warning [End Page 189] that the system would dissolve and that the dollar would have to fall substantially. Yet there seemed to be a striking reluctance to take a position on this basis until one minute before the clock struck midnight. This behavior may be hard to reconcile with perfect foresight, but, if it exists...