Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes--from medieval currency debasements to today's subprime catastrophe. Carmen Reinhart and Kenneth Rogoff, leading economists whose work has been influential in the policy debate concerning the current financial crisis, provocatively argue that financial combustions are universal rites of passage for emerging and established market nations. The authors draw important lessons from history to show us how much--or how little--we have learned. Using clear, sharp analysis and comprehensive data, Reinhart and Rogoff document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. They examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur. An important book that will affect policy discussions for a long time to come, This Time Is Different exposes centuries of financial missteps.

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This Time Is Different: Eight Centuries of Financial Folly

https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr72.pdf

The nature and growth of vertical specialization in world trade

The last few decades have seen a spectacular integration of the global economy through trade. The share of imports (or exports) in GDP for the United States has approximately doubled in the last two decades, and if intra-OECD trade is omitted, the same is true for the OECD countries generally. Trade does remain a seemingly small fraction of U.S. GDP. This is not surprising in view of the fact that large economies trade less with others, and more internally. But the modest share of trade in total national income hides the fact that merchandise trade as a share of merchandise value-added is quite high for the United States and the OECD, and has been growing dramatically. In fact, if one focuses on merchandise trade relative to value-added, the world is much more integrated today than at any time during the past century. The rising integration of world markets has brought with it a disintegration of the production process, in which manufacturing or services activities done abroad are combined with those performed at home. Companies are now finding it profitable to outsource increasing amounts of the production process, a process which can happen either domestically or abroad. This represents a breakdown in the vertically-integrated mode of production—the so-called ‘‘Fordist’’ production, exemplified by the automobile industry—on which American manufacturing was built. A number of prominent researchers have referred to the importance of the idea that production occurs internationally: Bhagwati and Dehejia (1994) call this ‘‘kaleidoscope comparative advantage,’’ as firms shift location quickly; Krugman

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Integration of Trade and Disintegration of Production in the Global Economy

We propose a more complete conceptual framework for analysis of SME credit availability issues. In this framework, lending technologies are the key conduit through which government policies and national financial structures affect credit availability. We emphasize a causal chain from policy to financial structures, which affect the feasibility and profitability of different lending technologies. These technologies, in turn, have important effects on SME credit availability. Financial structures include the presence of different financial institution types and the conditions under which they operate. Lending technologies include several transactions technologies plus relationship lending. We argue that the framework implicit in most of the literature is oversimplified, neglects key elements of the chain, and often yields misleading conclusions. A common oversimplification is the treatment of transactions technologies as a homogeneous group, unsuitable for serving informationally opaque SMEs, and a frequent misleading conclusion is that large institutions are disadvantaged in lending to opaque SMEs.

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A more complete conceptual framework for SME finance

Trade is a cornerstone concept in economics worldwide. This updated second edition of the essential graduate textbook in international trade brings readers to the forefront of knowledge in the field and prepares students to undertake their own research. In Advanced International Trade, Robert Feenstra integrates the most current theoretical approaches with empirical evidence, and these materials are supplemented in each chapter by theoretical and empirical exercises.Feenstra explores a wealth of material, such as the Ricardian and Heckscher-Ohlin models, extensions to many goods and factors, and the role of tariffs, quotas, and other trade policies. He examines imperfect competition, offshoring, political economy, multinationals, endogenous growth, the gravity equation, and the organization of the firm in international trade. Feenstra also includes a new chapter on monopolistic competition with heterogeneous firms, with many applications of that model. In addition to known results, the book looks at some particularly important unpublished results by various authors. Two appendices draw on index numbers and discrete choice models to describe methods applicable to research problems in international trade. Completely revised with the latest developments and brand-new materials, Advanced International Trade is a classic textbook that will be used widely by students and practitioners of economics for a long time to come.Updated second edition of the essential graduate textbookCurrent approaches and a new chapter on monopolistic competition with heterogeneous firmsSupplementary materials in each chapterTheoretical and empirical exercisesTwo appendices describe methods for international trade researchSolutions manual available to professorsProfessors: A supplementary Solutions Manual is available for this book. It is restricted to teachers using the text in courses.

/pdf/advanced-international-trade-theory-and-evidence-ed-2-4l4q17z9al.pdf

Advanced International Trade : Theory and Evidence Ed. 2

We provide cross-country and time series evidence on the extent of exchange rate pass-through into the import prices of 25 OECD countries. Across the OECD and especially within manufacturing industries, we find compelling evidence of partial pass-through in the short run, rejecting both producer-currency pricing and local currency pricing. Over the long run, producer-currency pricing is more prevalent for many types of imported goods. We show that many countries have experienced changes in exchange rate pass-through over the past decades. While we find that countries with higher rates of exchange rate volatility are also those with higher pass-through elasticities, we also conclude that macroeconomic variables have played only a minor role in accounting for the evolution of OECD pass-through over time. Far more important for pass-through changes have been the dramatic shifts in the composition of country import bundles.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID556762_code347008.pdf?abstractid=556762&mirid=3

Exchange Rate Pass-Through into Import Prices

Though exchange rate pass-through has long been of interest, the focus of this interest has evolved considerably over time. After a long period of debate over the law of one price and convergence across countries, beginning in the late 1980s exchange rate pass-through studies emphasized industrial organization and the role of segmentation and price discrimination across geographically distinct product markets. More recently pass-through issues have played a central role in heated debates over appropriate monetary policies and exchange rate regime optimality in general equilibrium models. 1 These debates have broad implications for the conduct of monetary policy, for macroeconomic stability, for international transmission of shocks, and for efforts to contain large imbalances in trade and international capital flows. These debates hinge on the issue of the prevalence of producer-currency pricing (PCP) versus local-currency pricing (LCP) of imports, and on whether exchange rate pass-through rates are endogenous to a country’s monetary performance. Low import price pass-through means that nominal exchange rate fluctuations may lead to lower expenditure-switching effects of domestic monetary policy. As a consequence of this insulation, monetary policy effectiveness is greater for stimulating the domestic economy. Taylor (2000) also has noted the potential complementarity between monetary stability and monetary effectiveness as a policy instrument. The idea is that if pass-through rates are endogenous to a country’s relative monetary stability, periods of more stable inflation and monetary performance also will be periods when monetary policy may be more effective as a stabilization instrument. Concerns

https://www.jstor.org/stable/pdf/40042885.pdf

Exchange Rate Pass-through into Import Prices

Global banks played a significant role in transmitting the 2007-09 financial crisis to emerging-market economies. We examine adverse liquidity shocks on main developed-country banking systems and their relationships to emerging markets across Europe, Asia, and Latin America, isolating loan supply from loan demand effects. Loan supply in emerging markets across Europe, Asia, and Latin America was affected significantly through three separate channels: 1) a contraction in direct, cross-border lending by foreign banks; 2) a contraction in local lending by foreign banks' affiliates in emerging markets; and 3) a contraction in loan supply by domestic banks, resulting from the funding shock to their balance sheets induced by the decline in interbank, cross-border lending. Policy interventions, such as the Vienna Initiative introduced in Europe, influenced the lending-channel effects on emerging markets of shocks to head-office balance sheets.

Global banks and international shock transmission: evidence from the crisis

The globalization of banking in the United States is influencing the monetary transmission mechanism both domestically and in foreign markets. Using quarterly information from all U.S. banks filing call reports between 1980 and 2006, we show that globalized banks activate internal capital markets with their overseas affiliates to insulate themselves partially from changes in domestic liquidity conditions. The existence of these internal capital markets directly contributes to an international propagation of domestic liquidity shocks to lending by affiliated banks abroad. While these results imply a substantially more active lending channel than documented in Kashyap and Stein (2000), they also imply that the lending channel within the United States is declining in strength as banking becomes more globalized and monetary transmission abroad likewise increases in strength.

Linda S. Goldberg

Papers

Exchange Rate Pass-Through into Import Prices

Exchange Rate Pass-through into Import Prices

Global banks and international shock transmission: evidence from the crisis

Banking Globalization and Monetary Transmission

Exchange rate pass-through into import prices: macro or micro phenomenon?