Barry Eichengreen

Bio: Barry Eichengreen is an academic researcher from University of California, Berkeley. The author has contributed to research in topics: Exchange rate & Currency. The author has an hindex of 116, co-authored 949 publications receiving 51073 citations. Previous affiliations of Barry Eichengreen include Centre for International Governance Innovation & International Monetary Fund.

Exchange market mayhem: the antecedents and aftermath of speculative attacks

Abstract: Exchange market mayhem The antecedents and aftermath of speculative attacks This paper evaluates the causes and consequences of episodes of turbulence in foreign exchange markets. Using data from 1959 through 1993 for twenty OECD countries, we consider the antecedents and aftermath of devaluations and revaluations, flotations, fixings and speculative attacks (which may not be successful). We find that realignments of fixed exchange rates are alike: devaluations are preceded by political instability, budget and current account deficits, and fast growth of money and prices. Revaluations are mirror images of devaluations. Speculative attacks resemble devaluations, but money growth and inflation are more endemic and there is no last-minute attempt to tighten monetary policy. In contrast, few consistent correlations link regime transitions like flotations or fixings to macroeconomic or political variables. Transitions between exchange rate regimes are largely idiosyncratic, and are neither consistently provoked ex ante by systematic imbalances, nor typically justified ex post by subsequent changes in policy. We conclude that there are no clear early warning signals of many speculative attacks, and no easy solutions for policy-makers. — Barry Eichengreen, Andrew K. Rose and Charles Wyplosz

Is the crisis problem growing more severe

Abstract: Financial crises Lessons from the last 120 years The crisis problem is one of the dominant macroeconomic features of our age. Its prominence suggests questions like the following: Are crises growing more frequent? Are they becoming more disruptive? Are economies taking longer to recover? These are fundamentally historical questions, which can be answered only by comparing the present with the past. To this end, this paper develops and analyses a data base spanning 120 years of financial history. We find that crisis frequency since 1973 has been double that of the Bretton Woods and classical gold standard periods and is rivalled only by the crisis‐ridden 1920s and 1930s. History thus confirms that there is something different and disturbing about our age. However, there is little evidence that crises have grown longer or output losses have become larger. Crises may have grown more frequent, in other words, but they have not obviously grown more severe. Our explanation for the growing frequency and chronic costs of crises focuses on the combination of capital mobility and the financial safety net, including the implicit insurance against exchange risk provided by an ex ante credible policy of pegging the exchange rate, which encourages banks and corporations to accumulate excessive foreign currency exposures. We also provide policy recommendations for restoring stability and growth. — Michael Bordo, Barry Eichengreen, Daniela Klingebiel and Maria Soledad Martinez‐Peria

Golden Fetters: The Gold Standard and the Great Depression, 1919-1939.

Abstract: This book is a reassessment of the international monetary crises of the post-World War I period that led to the Great Depression of the 1930s. It also analyses the responses of the world economic powers to the Depression and how new monetary policies set the stage for the watershed post-World War II system established at Bretton Woods. It offers new theories of what effect the Great Depression had on the collapse of the world monetary system, and what effect the collapse had on deepening and prolonging the Depression, by exploring the link between global economic crisis and the the gold standard (the framework for international monetary affairs until 1931). The events described had a profound effect upon twentieth-century history: the Depression abetted the rise of Hitler and the demise of the gold standard is a historical cause of inflation. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/9780195101133/toc.html(This abstract was borrowed from another version of this item.)

Exchange Rates and Financial Fragility

Abstract: In this paper we analyze three views of the relationship between the exchange rate and financial fragility: (1) the moral hazard hypothesis, according to which pegged exchange rates offer implicit insurance against exchange risk and thereby encourage reckless borrowing and lending; (2) the original sin hypothesis, which emphasizes an incompleteness in financial markets which prevents the domestic currency from being used to borrow abroad or to borrow long term even domestically; and (3) the commitment problem hypothesis, which sees financial crises as resulting from neither moral hazard nor original sin but from the weakness of the institutions that address commitment problems. We examine the evidence on these hypotheses and draw out their implications for exchange-rate policy in emerging markets

Golden Fetters: The Gold Standard and the Great Depression, 1919-1939

Abstract: This book is a reassessment of the international monetary crises of the post-World War I period that led to the Great Depression of the 1930s. It also analyses the responses of the world economic powers to the Depression and how new monetary policies set the stage for the watershed post-World War II system established at Bretton Woods. It offers new theories of what effect the Great Depression had on the collapse of the world monetary system, and what effect the collapse had on deepening and prolonging the Depression, by exploring the link between global economic crisis and the the gold standard (the framework for international monetary affairs until 1931). The events described had a profound effect upon twentieth-century history: the Depression abetted the rise of Hitler and the demise of the gold standard is a historical cause of inflation.

Gravity with Gravitas: A Solution to the Border Puzzle

Abstract: The gravity model has been widely used to infer substantial trade flow effects of institutions such as customs unions and exchange rate mechanisms. McCallum [1995] found that the US-Canada border led to trade between provinces that is a factor 22 (2,200%) times trade between states and provinces, a spectacular puzzle in light of the low formal barriers on this border. We show that the gravity model usually estimated does not correspond to the theory behind it. We solve the 'border puzzle' by applying the theory seriously. We find that national borders reduce trade between the US and Canada by about 44%, while reducing trade among other industrialized countries by about 30%. McCallum's spectacular headline number is the result of a combination of omitted variables bias and the small size of the Canadian economy. Within-Canada trade rises by a factor 6 due to the border. In contrast, within-US trade rises 25%.

International Norm Dynamics and Political Change

Abstract: Norms have never been absent from the study of international politics, but the sweeping “ideational turn” in the 1980s and 1990s brought them back as a central theoretical concern in the field. Much theorizing about norms has focused on how they create social structure, standards of appropriateness, and stability in international politics. Recent empirical research on norms, in contrast, has examined their role in creating political change, but change processes have been less well-theorized. We induce from this research a variety of theoretical arguments and testable hypotheses about the role of norms in political change. We argue that norms evolve in a three-stage “life cycle” of emergence, “norm cascades,” and internalization, and that each stage is governed by different motives, mechanisms, and behavioral logics. We also highlight the rational and strategic nature of many social construction processes and argue that theoretical progress will only be made by placing attention on the connections between norms and rationality rather than by opposing the two.

Gravity with Gravitas: A Solution to the Border Puzzle

Abstract: Gravity equations have been widely used to infer trade flow effects of various institutional arrangements. We show that estimated gravity equations do not have a theoretical foundation. This implies both that estimation suffers from omitted variables bias and that comparative statics analysis is unfounded. We develop a method that (i) consistently and efficiently estimates a theoretical gravity equation and (ii) correctly calculates the comparative statics of trade frictions. We apply the method to solve the famous McCallum border puzzle. Applying our method, we find that national borders reduce trade between industrialized countries by moderate amounts of 20-50 percent.