vouchers public school response and the role of incentives evidence from florida i introduction the concern over public school performance in the last two decades has pushed public school reform to the forefront of policy debate in the united states school accountability and school choice and especially vouchers are among the most hotly debated instruments of public school reform understanding the behavior and response of public schools facing these initiatives is key to an effective policy design this paper takes an important step forward in that direction by analyzing public school behavior under the florida voucher program the florida voucher program known as the opportunity scholarship program is unique in that it embeds a voucher program within a school accountability system moreover the federal no child left behind nclb act is similar to and largely modeled after the florida program which makes the latter all the more interesting and relevant much of the literature studying the effect of voucher programs on public schools has looked at the effect on student and mean school scores in contrast this study tries to go inside the black box to investigate some of the ways in which schools facing the voucher program behaved in the first 3 years after the program 1 exploiting the institutional details of the florida program during this period it analyzes the incentives built into the system and investigates public school behavior and response facing these incentives the florida voucher program written into law in june 1999 made all students of a school eligible for vouchers to move to private or higher performing public schools if the school got two f grades in a period of 4 years thus the program can be looked upon as a threat of voucher program schools getting an f grade for the first time were directly threatened by vouchers but vouchers were implemented only if they got another f grade in the next 3 years vouchers were always associated with a loss in revenue and also media publicity and visibility moreover the f grade being the lowest performing grade was likely associated with shame and stigma therefore the threatened schools had a strong incentive to try to avoid the second f 2 this paper studies some alternative ways in which the threatened schools responded facing the incentives built into the system under the 1999 florida grading criteria certain percentages of a school s students had to score above some specified cutoffs on the score scale for it to escape the second f therefore the threatened schools had an incentive to focus more on students expected to score just below these high stakes cutoffs rather than equally on all students did this take place in practice second to escape an f grade the schools needed to pass the minimum criteria in only one of the three subject areas of reading math and writing did this induce the threatened schools to concentrate more on one subject rather than equally on all if so which subject area did the schools choose to concentrate on one alternative would be to concentrate on the subject area closest to the cutoff 3 but subject areas differ in the extent of difficulties so it is not immediately obvious that it is easiest to pass the cutoff in the subject area closest to the cutoff rather schools are likely to weigh the extent of difficulties of the different subjects and their distances from the cutoffs and choose the subject that is least costly to pass the cutoff in addition to analyzing the above questions this study also tries to look at a broader picture if the threatened schools concentrated on students expected to score just below the high stakes cutoffs did their improvements come at the expense of higher performing ones using highly disaggregated school level florida data from 1993 through 2002 and a difference in differences analysis as well as a regression discontinuity rd analysis i investigate the above issues the schools that received the first f grade in 1999 were directly threatened and hence constitute my treated group of schools

financial development convergence abstract we show that credit levels relative to gdp and other measures for financial development tend to converge across countries over time the results are obtained using a broad sample of countries over many years and controlling for the quality of country level institutions the efficiency of financial institutions and a range of macroeconomic variables while we find evidence for convergence in the broad sample we show that it levels off when countries reach a medium level of financial development at high levels of financial development convergence slows down even more and becomes negligible

more mortgages lower growth in newly collected data on 46 economies over 1990 2011 we show that financial development since 1990 was mostly due to growth in credit to real estate and other asset markets which has a negative growth coefficient we also distinguish between growth effects of stocks and flows of credit we find positive growth effects for credit flows to nonfinancial business but not for mortgage and other asset market credit flows by accounting for the composition of credit stocks and for the effect of credit flows we explain the insignificant or negative growth effects of financial development in recent times what was true in the 1960s 1970s and 1980s when the field of empirical credit growth studies blossomed is no longer true in the 1990s and 2000s new bank lending is not primarily to nonfinancial business and financial development may no longer be good for growth these trends predate the 2008 crisis they prompt a rethink of the role of banks in the process of economic growth jel e44 o16 o40 c33

information school choice and academic achievement evidence from two experiments we examine a natural experiment and a field experiment that provided direct information on school test scores to lower income families in a public school choice plan receiving information significantly increases the fraction of parents choosing higher performing schools parents with high scoring alternatives nearby were more likely to choose nonguaranteed schools with higher test scores using random variation from each experiment we find that attending a higher scoring school increases student test scores the results imply that school choice will most effectively increase academic achievement for disadvantaged students when parents have easy access to test score information and good options from which to choose

measuring the incentives to learn in colombia using new quantile regression approaches abstract this paper employs newly developed quantile regression techniques to investigate a policy that could differentially affect students performance the colombian vouchers were assigned using lotteries and were renewable as long as the students maintained satisfactory academic progress this second aspect of the program may provide incentives for low attainment students to work harder the evidence supports the hypothesis that incentives could account for the impact of the vouchers including lower repetition rate the effect of the vouchers is largest in the lower tail of the educational attainment distribution a possibility that was conjectured by others but has not yet been confirmed empirically the evidence suggests that the incentive effect of the program increases weak students test scores by at least 0 1 standard deviations roughly the score gain associated to a half year of school learning

gentrification and failing schools the unintended consequences of school choice under nclb we examine the housing market and residential mobility changes that occur soon after a title 1 school fails to achieve adequate yearly progress ayp in charlotte north carolina students within attendance zones of failing schools are given priority in lotteries for oversubscribed schools potentially increasing the attractiveness of living in a failing school attendance zone we find that housing prices home buyer income and the probability of attending a nonassigned school increase in the highest quality neighborhoods within failing school attendance zones our results are driven largely by the behavior of new residents

bidding into electricity markets a transmission constrained residual demand derivative approach this paper proposes a novel approach to optimize a generator s profit in an offer based electricity market cleared by an optimal power flow opf program a generator s offer is optimized based on its transmission constrained residual demand derivative tcrdd which avoids representing the full network model in the optimization the tcrdd can be easily calculated based on a solved opf without changing existing opf algorithms and programs as demonstrated with an ieee 118 bus example the tcrdd approach is computationally efficient the tcrdd approach can help market participants to bid into electricity markets and help market monitors to diagnose bidding behaviors in the presence of transmission constraints

teaching to the rating school accountability and the distribution of student achievement this paper examines whether minimum competency school accountability systems such as those created under no child left behind influence the distribution of student achievement because school ratings in these systems only incorporate students test scores via pass rates this type of system increases incentives for schools to improve the performance of students who are on the margin of passing but does not increase short run incentives for schools to improve other students performance using student level panel data from texas during the 1990 s i explicitly calculate schools short run incentives to improve various students expected performance and i find that schools do respond to these incentives students perform better than expected when their test score is particularly important for their schools accountability rating also low achieving students perform better than expected in math when many of their classmates math scores are important for the schools rating while relatively high achieving students do not perform better distributional effects appear to be related to broad changes in resources or instruction as well as narrowly tailored attempts to improve the performance of specific students

heterogeneous effects of competitiveness shocks on macroeconomic performance across euro area countries this paper considers how competitiveness impacts macroeconomic performance in 11 euro area countries var models are estimated for the individual countries using quarterly data from 1995q4 to 2013q4 besides unit labour costs as a competitiveness measure the models include gdp the current account balance and domestic credit the empirical analyses show that changes in unit labour costs help explain gdp dynamics in the short and medium term in most countries whereas they have little explanatory power for the current account balance or domestic credit for most countries overall the effects of the unit labour costs vary substantially across the countries in the euro area the heterogeneity suggests that policy measures aiming to improve economic growth correct current account imbalances and ensure financial stability need to take country specific features into account

inflation financial markets and long run real activity abstract empirical evidence suggests that real activity the volume of bank lending activity and the volume of trading in equity markets are strongly positively correlated at the same time inflation and financial market activity are strongly negatively correlated in the long run as are inflation and the real rate of return on equity inflation and real activity are also negatively correlated in the long run particularly for economies with relatively high rates of inflation we present a monetary growth model in which banks and secondary capital markets play a crucial allocative function we show that at least under certain configurations of parameters the predictions of the model are consistent with these and several other observations about inflation finance and long run real activity

debt deleveraging and the liquidity trap a fisher minsky koo approach in this paper we present a simple new keynesian style model of debt driven slumps that is situations in which an overhang of debt on the part of some agents who are forced into rapid deleveraging is depressing aggregate demand making some agents debt constrained is a surprisingly powerful assumption fisherian debt deflation the possibility of a liquidity trap the paradox of thrift a keynesiantype multiplier and a rationale for expansionary fiscal policy all emerge naturally from the model we argue that this approach sheds considerable light both on current economic difficulties and on historical episodes including japan s lost decade now in its 18th year and the great depression itself

necessity as the mother of invention monetary policy after the crisis we examine recent changes in monetary policy due to the financial crisis and ask whether they are likely to be temporary or permanent we present evidence from two original surveys one of central bank governors the other of academic specialists we find that central banks in crisis countries are more likely to have resorted to new policies to have had discussions about changing mandates and to have communicated more extensively but thinking has changed more broadly for instance many central banks in non crisis countries also report implementing macro prudential measures looking forward we expect central banks to have broader mandates use macro prudential tools more widely and communicate more actively than before the crisis while there is no consensus yet about the usefulness of unconventional monetary policies we expect most of them will remain in central banks toolkits as governors who gain experience with a particular tool are more likely to assess that tool positively finally the relationship between central banks and their governments might well have changed with central banks crossing the line into the political realm more often than in the past

the global credit boom challenges for macroeconomics and policy the recent financial crisis has put the spotlight on the rapid rise in credit which preceded it in this paper we provide an empirical and theoretical analysis of the credit boom and the macroeconomic context in which it developed we find that the boom was unusually long and associated with neither particularly strong growth nor rising inflation in the economies in which it took place we show that this type of credit and financial cycle is hard to reconcile with existing economic theory and argue that while the global savings glut may account for the cycle s initial phase other factors such as the conduct of monetary policy and perceptions of declining macroeconomic risk were more important from the mid 2000s onwards we conclude by identifying some of the challenges now facing macroeconomics and policy

incentives and responses under no child left behind credible threats and the role of competition abstract nclb mandated the institution of adequate yearly progress ayp objectives and schools are assigned an ayp pass fail based on performance in these objectives ayp fail status is associated with negative publicity and often sanctions using data from wisconsin and alternate regression discontinuity designs i study the incentives and responses of schools that failed ayp once math induced ayp failures showed strong improvements in math while reading induced ayp failures showed marked improvements in reading consistent with incentives these schools showed no positive effect in other high stakes objectives in contrast test participation failures showed no effect in either high stakes reading or math while they showed some evidence of positive though not statistically significant effects in test participation improvements in reading are associated with parallel effects in low stakes language arts possibly due to spillover effects while there is no evidence of effects in low stakes science or social studies nor is there evidence of effects on graduation rates performance in low stakes grades suffered and so did performance in weaker subgroups in spite of their inclusion in ayp computations there is evidence of focus on marginal students around high stakes cutoffs in subject areas ayp failed schools improved in but this did not come at the expense of ends credibility of threat mattered ayp failed schools that faced more competition responded considerably more strongly in the objectives they had incentives in

house prices home equity based borrowing and the u s household leverage crisis us household leverage sharply increased in the years preceding the 2007 eco nomic recession the top panel of figure 1 shows the steady rise in household debt since 1975 which accelerated beginning in 2002 in just five years the household sector doubled its debt balance in comparison the contemporaneous increase in corporate debt was modest the middle panel shows that the increase in household debt from 2002 to 2007 translated into a striking rise in household leverage as mea sured by the debt to income ratio during the same time period corporate leverage declined the dramatic absolute and relative rise in us household leverage from 2002 to 2007 is unprecedented compared to the last 25 years one reason for the rapid expansion in household leverage during this period is that mortgage credit became more easily available to new home buyers mian and sufi 2009 strong house price appreciation from 2002 to 2006 however which may have been fueled by the availability of mortgage credit to a riskier set of new home buyers could also have had an important feedback effect on household lever age through existing homeowners given that 65 percent of us households already owned their primary residence before the acceleration in house prices the feedback from house prices to borrowing may be an important source of the rapid rise in household leverage that preceded the economic downturn our central goals in this study are to estimate how homeowner borrowing responded to the increase in house prices and to identify which homeowners responded most aggressively we examine this home equity based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency we follow a random sample of over 74 000 us homeowners who owned their homes as of 1997 at an annual frequency from the end of 1997 until the end of 2008 the bottom panel of figure 1 plots the growth in debt of 1997 homeowners over time and shows that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006 while the aggregate trend is suggestive

when credit bites back using data on 14 advanced countries between 1870 and 2008 we document two key facts of the modern business cycle relative to typical recessions financial crisis recessions are costlier and more credit intensive expansions tend to be followed by deeper recessions in financial crises or otherwise and slower recoveries we use local projection methods to condition on a broad set of macro economic controls to study how past credit accumulation impacts key macro economic variables such as output investment lending interest rates and inflation the facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle

testing crime and punishment abstract the recent passage of the no child left behind act of 2001 solidified a national trend toward increased student testing for the purpose of evaluating public schools this new environment for schools provides strong incentives for schools to alter the ways in which they deliver educational services this paper investigates whether schools may employ discipline for misbehavior as a tool to bolster aggregate test performance to do so this paper utilizes an extraordinary data set constructed from the school district administrative records of a subset of the school districts in florida during the 4 years surrounding the introduction of a high stakes testing regime it compares the suspensions of students involved in each of the 41 803 incidents in which two students were suspended and where prior test scores for both students are observed while schools always tend to assign harsher punishments to low performing students than to high performing students throughout the year this gap grows substantially during the testing window moreover this testing window related gap is only observed for students in testing grades in summary schools apparently act on the incentive to re shape the testing pool through selective discipline in response to accountability pressures

covid 19 and the financial system a tale of two crises this paper compares and contrasts the resilience of the financial system in particular banks during the global financial crisis and covid 19 we show that banks are now part of the solution rather than part of the problem thanks to regulatory and institutional reforms over the past decade heeding the lessons from the global financial crisis has paid dividends we outline some early lessons from the covid 19 crisis for the financial system going forward the author s 2020 published by oxford university press for permissions please e mail journals permissions oup com

zero interest rate policy and unintended consequences in emerging markets since 2009 central banks in the major advanced economies have held interest rates at very low levels to stabilise financial markets and support the recovery of their economies this paper outlines the unintended consequences of the prolonged period of very low world funding interest rates in emerging markets the paper is informed by a mises hayek bis view on credit booms and mises law of unintended consequences consistent with the presented credit boom view i provide evidence that the very low world funding interest rates are associated with a rise in volatile capital flows and asset market bubbles in fast growing emerging markets in line with mises law i further show that these unintended consequences give rise to a new wave of interventionism as policymakers in emerging markets increasingly reintroduce financially repressive measures to isolate the economies from foreign capital inflows

the great mortgaging housing finance crises and business cycles this paper unveils a new resource for macroeconomic research a long run dataset covering disaggregated bank credit for 17 advanced economies since 1870 the new data show that the share of mortgages on banks balance sheets doubled in the course of the twentieth century driven by a sharp rise of mortgage lending to households household debt to asset ratios have risen substantially in many countries financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries housing finance has come to play a central role in the modern macroeconomy

srisk a conditional capital shortfall measure of systemic risk we introduce srisk to measure the systemic risk contribution of a financial firm srisk measures the capital shortfall of a firm conditional on a severe market decline and is a function of its size leverage and risk we use the measure to study top financial institutions in the recent financial crisis srisk delivers useful rankings of systemic institutions at various stages of the crisis and identifies fannie mae freddie mac morgan stanley bear stearns and lehman brothers as top contributors as early as 2005 q1 moreover aggregate srisk provides early warning signals of distress in indicators of real activity received june 7 2011 accepted april 18 2016 by editor geert bekaert

one size fits all monetary policy and asymmetric household debt cycles in u s states i investigate the nonlinear effects of monetary policy through differences in household debt across u s states after constructing a novel indicator of inflation for the states i compute state specific monetary policy stances as deviations from an aggregate taylor rule i find that the effectiveness of monetary policy is curtailed during periods of large household debt imbalances moreover a common u s monetary policy does not fit all it may have asymmetric effects on the economic performance across states particularly at times of high dispersion in the household debt imbalances as it may have been the case around the great recession

capital regulation and credit fluctuations we provide a rationale for imposing counter cyclical capital ratios on banks in our simple model bankers cannot pledge the entire future revenues to investors which limits borrowing in good and bad times complete markets do not sufficiently stabilize credit fluctuations as banks allocate too much borrowing capacity to good states and too little to bad states as a consequence bank credit output capital prices or wages are excessively volatile imposing a stricter capital ratio in good states corrects the misallocation of the borrowing capacity increases expected output and can be beneficial to all agents in the economy although in our economy all agents are risk neutral counter cyclical capital ratios are an effective stabilization tool to ensure this effectiveness capital ratios have to be based on ex ante equity capital as classical capital ratios can be bypassed

cost benefit analysis of leaning against the wind abstract an obvious cost of leaning against the wind is a weaker economy if no financial crisis occurs possible benefits are lower probabilities and smaller magnitudes of crises a second cost less obvious previously overlooked but higher is a weaker economy if a crisis occurs for representative estimates costs exceed benefits by substantial margins overturning the result requires policy rate effects on the probability and magnitude of crises more than 5 40 standard errors larger than representative estimates higher probabilities larger magnitudes or longer durations of crises typical consequences of ineffective macroprudential policy increase the margin of costs over benefits

post crisis business investment in the euro area and the role of monetary policy business investment in the euro area strongly declined during the global financial crisis and the sovereign debt crisis it has not yet rebounded to its pre crisis trend despite the very expansiona

financial crises output losses and the role of structural reforms financial crises take a heavy toll on output growth we assess the role of structural reforms in reducing the output losses resulting from financial crises across advanced economies emerging and developing economies and low income developing economies we also revisit the role of macroeconomic policies in this context the impact of crises on output growth differs between types of crises and economies thus warranting sample splits along these lines some but not all reforms and policies help to reduce the output losses of crises in the medium term highlighting the need not to overgeneralize the effectiveness of reforms and policies further research is warranted to further explore the heterogeneity in the impact of financial crises on output growth and to better understand when and how specific structural reforms and macroeconomic policies can mitigate the output costs of financial crises jel e32 e44 e63 g28 o47

accountability incentives and behavior the impact of high stakes testing in the chicago public schools the recent federal education bill no child left behind requires states to test students in grades 3 to 8 each year and to judge school performance on the basis of these test scores while intended to maximize student learning there is little empirical evidence about the effectiveness of such policies this study examines the impact of an accountability policy implemented in the chicago public schools in 1996 1997 using a panel of student level administrative data i find that math and reading achievement increased sharply following the introduction of the accountability policy in comparison to both prior achievement trends in the district and to changes experienced by other large urban districts in the mid west however for younger students the policy did not increase performance on a state administered low stakes exam an item level analysis suggests that the observed achievement gains were driven by increases in test specific skills and student effort i also find that teachers responded strategically to the incentives along a variety of dimensions by increasing special education placements preemptively retaining students and substituting away from low stakes subjects like science and social studies

private debt overhang and the government spending multiplier evidence for the united states using state dependent local projections and historical us data we find that government spending multipliers are considerably larger in periods of private debt overhang in particular while multipliers are below or close to one in low private debt states we find significant crowding in of private spending in periods of debt overhang resulting in multipliers that are much larger than one in high private debt episodes more government purchases even reduce the ratio of government debt to gross domestic product these results are robust for the type of shocks and when we control for the business cycle financial crises deleveraging episodes government debt overhang and the zero lower bound

international evidence on the historical properties of business cycles we contrast properties of real quantities with those of price levels and stocks of money for ten countries over the last century although the magnitude of output fluctuations has varied across countries and periods relations among real quantities have been remarkably uniform properties of price levels however exhibit striking differences between periods inflation rates are more persistent after world war ii than before and price level fluctuations are typically procyclical before world war ii and countercyclical afterward fluctuations in money are less highly correlated with output in the postwar period but are no more persistent than in earlier periods jel e32 e31

what explains the speed of recovery from banking crises abstract while a large body of research has explored the causes and effects of banking crises less is known about what determines recovery from banking crises despite large variations in post crisis performances across countries in order to identify local and global factors that determine the length of recovery i e the time it takes until countries reach their pre crisis level of per capita gdp this exploratory paper employs event history analysis on 138 incidents of banking crises between 1970 and 2012 regarding domestic factors the simultaneous occurrence of currency crises large financial sectors overvalued currencies and large primary deficits are associated with later recovery whereas higher debt to gdp ratios or inflation levels do not exhibit a negative effect on post crisis performances regarding external factors a low growth of world trade as well as indicators of uncertainty in financial markets are correlated with later recovery global interest rate shocks are particularly harmful for the speed of recovery among middle income countries with a strong reliance on external capital the results are similar when using the length of recessions as an alternative indicator of post crisis performances

the circular relationship between inequality leverage and financial crises in this paper we put into perspective the recent literature which points to inequality as a possible cause of credit bubbles by reintegrating it into a more general analysis on the two way relationship between inequality and finance we focus more specifically on situations where high inequalities and widespread access to credit coexist and argue that even when institutions maintain more or less equal access to finance there may be a dynamic positive circular relationship between inequality and financial development however even if there is some evidence in the literature of a positive causal impact of inequality on credit this does not preclude other important cofounding factors the conclusions concerning the distributional impact of finance are more ambiguous a survey of the empirical literature highlights several issues that must be tackled first endogeneity reverse causality and coincidental factors are major concerns second the choice of consistent measurements for the key variables both credit and inequality has strong empirical implications and must be grounded on relevant theoretical channels third those circular dynamics have substantial policy implications for emerging economies since an increasing number face a joint increase in inequality and credit

institutions household credit composition and the business cycle we show that the negative effect of household credit growth on subsequent economic growth documented in the recent literature is not the same across countries the effect is stronger in countries with weak institutions where the fraction of consumer credit in total household credit is greater that is an important nuance as consumer credit is a sizable part of household credit in many emerging markets and its rapid buildup should be observed with the same caution as a rapid buildup in housing credit jel g21 e32 e44

financial and fiscal interaction in the euro area crisis this time was different abstract this paper highlights the anomalous characteristics of the euro area twin crises by contrasting the aggregate macroecosnomic dynamics in the period 2009 2013 with the business cycle fluctuations of the previous decades we report three novel stylised facts first the contraction in output was marked by an anomalous downfall in private investment and an increase in households savings while consumption and unemployment followed their historical relation with gdp second households and financial corporations debts and house prices deviated from their pre crisis trends while non financial corporations debt followed historical regularities third the jumps in the public deficit gdp and debt gdp ratios in 2008 2009 were unprecedented and so was the fiscal consolidation that followed our analysis points to the financial nature of the crisis as a likely explanation for these facts importantly the anomalous increase in public debt is in large part explained by extraordinary measures in support of the financial sector which show up in the stock flow adjustments and reveal a keyinteraction between the fiscal and the financial sectors

does it pay to get an a school resource allocations in response to accountability ratings abstract this paper examines public school district budgetary responses to school accountability ratings we identify school district budgetary changes through a rating shock due to a major change in school accountability systems in texas texas implemented a new accountability system and new exam and allowed schools a gap year to adjust to the new test using the new texas exam as an exogenous change we find a 1 5 increase in instructional budgets mainly for teachers as a response to a drop in rating this increase is found to disappear within 3 years suggesting temporary budget support to learn the new system but no long run institutional change

gains from anchoring inflation expectations evidence from the taper tantrum shock abstract have improvements in monetary policy frameworks increased emerging market resilience to external shocks this paper exploits the may 2013 taper tantrum episode in the united states to study the reaction of 18 large emerging markets to an external shock conditioning on their degree of inflation expectations anchoring we find that while the tapering announcement negatively affected growth prospects regardless of the level of anchoring countries with weakly anchored inflation expectations experienced larger exchange rate pass through to consumer prices and higher inflation these findings suggest that gains in inflation expectations anchoring can improve central bank s policy trade offs when facing external shocks

effect of secondary school fees on educational attainment in this study the heterogeneity of the fee abolition process in west german secondary schools is used to identify the effect of school fees on educational attainment and to obtain an estimate of the price elasticity of upper secondary education the analysis is based on representative individual level data from three annual surveys of the german mikrozensus while coefficients cannot be estimated precisely the results suggest that on average upper secondary school attainment increased by at least 8 percent in response to the fee abolition the educational attainment of females appears to be more price sensitive than that of males

corporate debt structure and economic recoveries abstract this paper analyzes the business cycle behavior of the corporate debt structure and its interaction with economic recovery the debt structure is measured as the share of bonds in the total credit to non financial corporations for a quarterly panel of countries over the period 1989 2013 we first show that the substitution of loans for bonds in recoveries is a regular property of business cycles secondly we provide evidence that economies with high bond share and important bond loan substitution recover from the recessions faster this identified link between corporate debt structure and business cycles is robust to the inclusion of traditional factors which shape recessions and recovery such as the size and the quality of financial markets the occurrence of bank crisis the dynamics of credit and the distribution of firm size

how does financial liberalisation affect the influence of monetary policy on the current account abstract does the current account improve or deteriorate following a monetary policy expansion we examine this issue theoretically and empirically we show that a standard open economy dsge model predicts that the current account response to a monetary policy shock depends on the degree of financial regulation in particular financial liberalisation makes it more likely that the current account deteriorates following a monetary expansion we test this theoretical prediction with a varying coefficient bayesian panel var model where the coefficients are allowed to vary as a function of the degree of financial product and labour market regulation on data from 1976q1 2006q4 for 19 oecd countries our empirical results support the theory we therefore conclude that following a monetary policy expansion the current account is more likely to go into deficit in countries with more liberalised financial markets

food for thought the effects of school accountability plans on school nutrition abstract with the passage of the no child left behind act of 2001 school accountability is now federal law continuing the recent trend of states implementing significant accountability systems for schools this paper studies an unusual yet powerful school response to accountability systems using disaggregated school lunch menus from a random sample of school districts in virginia we find that schools threatened with accountability sanctions increase the caloric content of their lunches on testing days in an apparent attempt to boost short term student cognitive performance moreover we find that the schools that responded the most along these dimensions experienced the greatest improvements in standardized test scores

business cycles in international historical perspective business cycle models seek to answer the question of why economies go through cycles of recession and recovery or boom and bust any theory of the business cycle makes two sorts of claims what shocks are most important in disturbing the economy and what economic structure is necessary for propagating these shocks for example one common explanation of business cycles begins with monetary shocks and then seeks to explain why monetary shocks are not purely neutral as neoclassical theory would have it and instead have real effects at least in the short term early models in this vein were often implicitly or explicitly based on the proposition that markets do not clear continuously early equilibrium real business cycle theories instead emphasized the importance of real shocks especially to technology which may cause socially efficient fluctuations even when markets are always in equilibrium more recent models have attempted to marry the equilibrium approach to macroeconomics with the substantive keynesian ideas that money is not neutral and that economic fluctuations are costly new keynesian theories of the business cycle admit the possibility of a number of economic shocks including monetary and technology shocks but then focus on explaining how nominal price rigidities within the economy can turn these shocks into recessions or booms other models show that business cycles driven by keynesian animal spirits are consistent with rigorous microfoundations and rational expectations seeking empirical evidence for and against these various approaches we turn business cycle theories loose on perhaps the greatest macroeconomic laboratory

debt deflation theory and evidence abstract in the early 1990s the most severe recessions occurred in those countries which had experienced the largest increases in private debt burdens was this an accident of history or did it reflect deeper forces affecting market economies the paper comprises three parts first it presents three stylised facts about debt and its impact on consumption growth in the 1930s and the 1990s second it discusses the reception of irving fisher s work on debt deflation by his contemporaries and argues that it is helpful to think of debt deflation as a real business cycle phenomenon third there is a theoretical discussion of the reaction of debt and consumption to shocks in the context of a model of precautionary saving central to the model is the role of distributional shocks which implies that aggregate demand may be a nonmonotonic function of the price of assets in terms of the consumption good multiple equilibria may exist leading to the possibility of financial instability the analysis of debt deflation requires the construction of real business cycle models without a representative consumer

dissecting the cycle a methodological investigation following burns and mitchell we define the cycle as a pattern in the level of aggregate economic activity an algorithm to locate turning points is developed as is a new measure of pro cyclicality a link between turning points and the moments of the series is established thereby providing the statistical foundation that burns and mitchell s work lacked using these tools we are able to dissect cycles in terms of the contributions made by trend growth volatility serial correlation and non linear effects we dissect several models and find little evidence that certain non linear effects are important to the nature of business cycles

private school vouchers and student achievement an evaluation of the milwaukee parental choice program in 1990 wisconsin began providing vouchers to a small number of low income students to attend nonsectarian private schools controlling for individual fixed effects i compare the test scores of students selected to attend a participating private school with those of unsuccessful applicants and other students from the milwaukee public schools i find that students in the milwaukee parental choice program had faster math score gains than but similar reading score gains to the comparison groups the results appear robust to data imputations and sample attrition although these deficiencies of the data should be kept in mind when interpreting the results

experimental estimates of education production functions this paper analyzes data on 11 600 students and their teachers who were randomly assigned to different size classes from kindergarten through third grade statistical methods are used to adjust for nonrandom attrition and transitions between classes the main conclusions are 1 on average performance on standardized tests increases by four percentile points the first year students attend small classes 2 the test score advantage of students in small classes expands by about one percentile point per year in subsequent years 3 teacher aides and measured teacher characteristics have little effect 4 class size has a larger effect for minority students and those on free lunch 5 hawthorne effects were unlikely

the finance growth nexus in crisis while the literature on the finance growth nexus suggests a positive link between financial development and economic growth another strand of literature highlights the crucial role of credit growth for the occurrence and strength of financial and economic crises in this paper we link the two seemingly contradicting strands of the literature by a strong and robust empirical finding while financial development is indeed positively linked to gdp p c growth in normal non crisis times larger financial sectors lead to significantly worse economic outcomes in the case of a banking crisis

choice of ontario high schools and student sorting by ability to what extent can offering more choice in schooling lead to cream skimming or the sorting of students by ability i study whether increased choice leads to student sorting by ability into high schools in the greater toronto area on average 41 of students opt out of the high school to which they would normally be assigned based on their residence students are more likely to opt out in areas where accessibility to other schools is greatest due to population density and explicit open enrolment policies while students of higher ability are generally more likely to opt out an interaction term between school choice and ability is insignificant suggesting that increased choice does not have differential impacts by student ability findings are robust to changes in assumptions about instrument exogeneity

school vouchers a survey of the economics literature we review the theoretical computational and empirical research on school vouchers with a focus on the latter our assessment is that the evidence to date is not sufficient to warrant recommending that vouchers be adopted on a widespread basis however multiple positive findings support continued exploration specifically the empirical research on small scale programs does not suggest that awarding students a voucher is a systematically reliable way to improve educational outcomes and some detrimental effects have been found nevertheless in some settings or for some subgroups or outcomes vouchers can have a substantial positive effect on those who use them studies of large scale voucher programs find student sorting as a result of their implementation although of varying magnitude evidence on both small scale and large scale programs suggests that competition induced by vouchers leads public schools to improve moreover research is making progress on understanding how vouchers may be designed to limit adverse effects from sorting while preserving positive effects related to competition finally our sense is that work originating in a single case e g a given country or in a single research approach e g experimental designs will not provide a full understanding of voucher effects fairly wide ranging empirical and theoretical work will be necessary to make progress

bank asset quality monetary policy pass through the funding mix of european firms is weighted heavily towards bank credit which underscores the importance of efficient pass through of monetary policy actions to lending rates faced by firms euro area pass through has shifted from being relatively homogenous to being fragmented and incomplete since the financial crisis distressed loan books are a crisis hangover with direct implications for profitability hampering banks ability to supply credit and lower loan pricing in response to reductions in the policy rate this paper presents a parsimonious model to decompose the cost of lending and highlight the role of asset quality in diminishing pass through using bank level data over the period 2008 2014 we empirically test the implications of the model we show that a one percentage point increase in the impairment ratio lowering short run pass through by 3 we find that banks with severely impaired balance sheets do not adjust their loan pricing in response to changes in the policy rate at all

how accountability pressure on failing schools affects student achievement abstract although an emerging body of evidence has shown that the threat of sanctions on low performing schools can raise student test scores in the short run the extent to which these test score improvements are due to schools manipulation of the accountability system has remained uncertain in this paper i provide two new strands of evidence to evaluate the relative importance of educational reforms and gaming behavior in generating test score gains by threatened schools first using a regression discontinuity design that exploits florida s system of imposing sanction threats on the basis of a cutoff level of performance i estimate medium run effects on student test scores from having attended a threatened elementary school threat induced math improvements from elementary school largely persist at least through the first 1 to 2 years of middle school while evidence for persistence of reading improvements is less consistent second i analyze the effects of sanction threats on various features of educational production and i find that sanction threats raise school spending on instructional technology curricular development and teacher training both strands of evidence are consistent with a predominant role for educational reforms in generating test score gains by threatened schools

bubbles and crises the role of house prices and credit this paper utilizes quarterly panel data for 20 oecd countries over the period 1975 q1 2014 q2 to explore the importance of house prices and credit in affecting the likelihood of a financial crisis

can increasing private school participation and monetary loss in a voucher program affect public school performance evidence from milwaukee abstract the milwaukee voucher program as implemented in 1990 allowed only non sectarian private schools to participate in the program following a wisconsin supreme court ruling the program saw a major shift and entered into its second phase when religious private schools were allowed to participate for the first time in 1998 this led to more than a three fold increase in the number of private schools and almost a four fold increase in the number of choice students moreover due to some changes in funding provisions the revenue loss per student from vouchers increased in the second phase of the program this paper analyzes the impacts of increase in competition brought about by these changes on public school performance in milwaukee using data from 1987 to 2002 and a difference in differences estimation strategy in trends the paper finds that these changes have led to an improvement of the public schools in the second phase of the program as compared to the first phase the results are robust to alternative samples and specifications and survive several sensitivity checks including correcting for mean reversion the findings imply that voucher design matters and choice of parameters in a voucher program is crucial as far as impacts on public school incentives and performance are concerned

credit crises money and contractions an historical view abstract the relatively infrequent nature of major credit distress events makes an historical approach particularly useful using a combination of historical narrative and econometric techniques we identify major periods of credit distress from 1875 to 2007 examine the extent to which credit distress arises as part of the transmission of monetary policy and document the subsequent effect on output using turning points defined by the harding pagan algorithm we identify and compare the timing duration amplitude and co movement of cycles in money credit and output regressions show that financial distress events exacerbate business cycle downturns both in the 19th and 20th centuries and that a confluence of such events makes recessions even worse

reserve accumulation and financial crises from individual protection to systemic risk abstract this paper provides a new perspective on the relationship between countries international reserve holdings and financial crises while the local view holds that reserves may prevent domestic crises it overlooks that the accumulation of reserves relaxes the financing constraint of the reserve currency country and may cause a financial crisis in the centre which is transmitted globally according to this global view reserve accumulation might destabilize the international financial system since the crisis affects all countries alike the accumulation of reserves imposes a negative externality on non accumulating countries we integrate this idea in a theoretical model of the optimal amount of reserves and illustrate the gap between local and global optimality the consideration of systemic risk lowers the demand for reserves moreover if a supranational authority determines the optimal level of reserves it internalizes the negative externality and accumulates fewer reserves a macroprudential tax on reserve hoardings might implement the socially optimal solution our calibration analysis shows that these considerations are economically significant they lower the optimal amount of reserves in the benchmark case by 45

transmission constrained inverse residual demand jacobian matrix in electricity markets a generation firm in an electricity market may own multiple generators located at multiple locations this paper generalizes the concept of transmission constrained residual demand from a single generator s perspective to that of a generation firm we calculate the derivative of a generation firm s inverse residual demand function i e the jacobian matrix based on a multi parameter sensitivity analysis of the optimal power flow solution and characterize some of its properties this jacobian matrix provides valuable information such as in characterizing a generation firm s profit maximizing strategy we apply the bundle newton method utilizing the jacobian matrix to find a generation firm s maximum profit the effectiveness and performance of the algorithm is demonstrated with the ieee 118 bus system example the jacobian matrix and the profit maximizing algorithm are helpful for market participants to bid into electricity markets and for market monitors to analyze firm based strategic behaviors

international house price cycles monetary policy and credit abstract we evaluate three alternative predictors of house price corrections anticipated tightenings of monetary policy deviations of house prices from fundamentals and rapid credit growth a new cross country measure of monetary policy expectations based on an international term structure model with time varying risk premiums is constructed house price overvaluation is estimated via an asset pricing model the variables are incorporated into a panel logit regression model that estimates the likelihood of a large house price correction in 18 oecd countries the results show that corrections are predicted by increases in the market s forecast of higher policy rates the estimated degree of house price overvaluation also contains significant information about subsequent price reversals in contrast to the financial crisis literature credit growth is less important all of these variables help forecast recessions

beyond incentives do schools use accountability rewards productively we use a regression discontinuity design to analyze an understudied aspect of school accountability systems how schools use financial rewards for two years california s accountability system financially rewarded schools based on a deterministic function of test scores qualifying schools received per pupil awards amounting to about 1 of statewide per pupil spending corroborating anecdotal evidence that awards were paid out as teacher bonuses we find no evidence that winning schools purchased more instructional material increased teacher hiring or changed the subject specific composition of their teaching staff most importantly we find no evidence that student achievement increased in winning schools supplemental materials for this article are available online

financial innovation the bright and the dark sides based on data from 32 countries over the period 1996 2010 this paper is the first to assess the relationship between financial innovation on the one hand and bank growth and fragility as well as economic growth on the other hand we find that different measures of financial innovation capturing both a broad concept and specific innovations are associated with faster bank growth but also higher bank fragility and worse bank performance during the recent crisis these effects are stronger in countries with larger securities markets and more restrictive regulatory frameworks in spite of these seemingly ambiguous findings our evidence points to a positive net effect of financial innovation on economic growth financial innovation is associated with higher growth in countries and industries with better growth opportunities

transfer capability improvement through market based operation of series facts devices traditionally electric system operators have dispatched generation to minimize total production costs ignoring the flexibility of the transmission system implementation of smart grid systems could allow operators to co optimize flexible transmission alongside generation dispatch the technologies that would enable such co optimization are still regulated as part of the monopoly transmission system one particular flexible transmission asset is variable impedance flexible ac transmission system facts this paper 1 points out the positive externality problem existing in a recent market design proposal with active transmission participation and 2 proposes a sensitivity based method to estimate the marginal market value of facts adjustments to overcome this positive externality problem the marginal value would suggest efficient impedance adjustments to the operator and provide the right financial incentives for the facts owners to operate their assets in a socially optimal way revenue adequacy is demonstrated under specific conditions and more broadly investigated through simulation studies an analytical example on a two bus system as well as a numerical study on the ieee 118 bus system are presented the results suggest that inclusion of a price signal for facts devices would lead to significant social welfare improvements in competitive power markets

have economic fluctuations been dampened a look at evidence outside the united states abstract until recently economists of all beliefs took it for granted that the severity of economic fluctuations had decreased sharply following world war ii recent work has challenged this view this study attempts to shed light on whether there was a true reduction in the severity of economic fluctuations by examining the experience of six european countries with one exception these countries did not experience a substantial reduction in the severity of the business cycle

the effects of systemic banking crises in the inter war period abstract this paper examines the time profile of the impact of systemic banking crises on gdp and industrial production using a panel of 24 countries over the inter war period and compares this to the post war experience of these countries we show that banking crises have effects that induce medium term adjustments on economies focussing on an eight year horizon it is clear that the negative effects of systemic banking crises last over the entirety of this time horizon the effect has been identified for gdp and industrial production the adverse effect on the industrial sector stands out as being substantially larger in magnitude relative to the macroeconomic effect comparing the results across long run historical periods for the same selection of countries and variables identifies some differences that stand out the short term macroeconomic impact effects are much larger in the post war period suggesting that the propagation channels of shocks operate at a faster pace in the more recent period moreover the time profile of effects differs suggesting that modern policies may be modulating the temporal shape of the response to banking crises shocks however the broad magnitude of the adverse effect of banking crises remains comparable across these time periods

on the properties of nodal price response matrix in electricity markets we establish sufficient conditions for nodal price response matrix in electric power system to be symmetric and negative semi definite the results are applicable for electricity markets with nonlinear and intertemporal constraints

economic costs of alternative monetary policy responses to speculative currency attacks abstract the outcome of a speculative attack on the foreign exchange rate can be classified into three cases i immediate depreciation of the nominal exchange rate ii successful defense or iii failed defense this paper explores which of these outcomes yields the lowest cost in terms of output and unemployment in the short and medium run ex ante the outcome of a speculative attack is uncertain therefore the appropriate response of monetary authorities to a speculative attack depends on the cost of an immediate depreciation compared with that of the expected outcome of a currency defense our empirical analysis focuses on a sample of 73 emerging and developing countries over the 1960 2011 period our results indicate that an immediate depreciation is the policy response that is associated with a lower expected output loss and unemployment in the short run and it tends to be expansionary in the medium run a defense if successful entails insignificant costs in the short run but unlike an immediate depreciation a successful defense is not expansionary in the medium run if a defense fails large output losses and an increase in unemployment ensue at least in the short run

macroprudential policy central banks and financial stability evidence from china abstract we study the chinese experience and provide evidence that central banks can play an active role in safeguarding financial stability the narrative approach is used to disentangle macropudential policy actions from monetary actions we show that reserve requirements window guidance supervisory pressure and housing market policies can be used for macroprudential purposes our var estimates suggest that well targeted macroprudential policy has immediate and persistent impact on credit but no statistically significant impact on output macroprudential policy can be used to retain financial stability without triggering an economic slowdown or as a complement to monetary policy to offset the buildup of financial vulnerabilities arising from monetary easing a well designed mix of these two policies helps to achieve both macroeconomic and financial stability objectives which however requires central banks to maintain a multi instrument framework

do accountability and voucher threats improve low performing schools abstract we study the effects of the threat of vouchers and stigma in florida on the performance of low performing schools estimates of the change in raw test scores from the first year of the reform are consistent with the early results which claimed large improvements associated with the threat of vouchers however we also find that much of this estimated effect may be due to other factors the relative gains in reading are largely explained by changing student characteristics and the gains in math though larger appear limited to the high stakes grade we also find some evidence that these improvements were due more to the stigma of receiving the low grade rather than the threat of vouchers

agent based stock flow consistent macroeconomics towards a benchmark model abstract the paper moves from a discussion of the challenges posed by the crisis to standard macroeconomics and the solutions adopted within the dsge community although several recent improvements have enhanced the realism of standard models we argue that major drawbacks still undermine their reliability in particular dsge models still fail to recognize the complex adaptive nature of economic systems and the implications of money endogeneity the paper argues that a coherent and exhaustive representation of the inter linkages between the real and financial sides of the economy should be a pivotal feature of every macroeconomic model and proposes a macroeconomic framework based on the combination of the agent based and stock flow consistent approaches the papers aims at contributing to the nascent ab sfc literature under two fundamental respects first we develop a fully decentralized ab sfc model with several innovative features and we thoroughly validate it in order to check whether the model is a good candidate for policy analysis applications results suggest that the properties of the model match many empirical regularities ranking among the best performers in the related literature and that these properties are robust across different parameterizations second the paper has also a methodological purpose in that we try to provide a set or rules and tools to build calibrate validate and display ab sfc models

macrofinancial imbalances in historical perspective a global crisis index abstract global crisis episodes are rare events that can be properly studied by adopting the long run view of macroeconomic history in this study we explore the strength of the relationship between current account imbalances credit growth and equity returns at global level and document new evidence of a recurring sequencing pattern ahead of global crisis periods where credit booms are preceded by growing external imbalances and crisis episodes occur at the low end of the contraction phase of equity returns we use this information to construct a single aggregate measure with the aim of signaling periods of increasing risk of macroeconomic and financial instability at global level three major crisis episodes are identified with our global crisis index the 1929 crisis the breakdown of the bretton woods system and the recent financial crisis since past global crisis episodes at international level culminated with the collapse of existing international monetary systems the ongoing debate on the reforms needed to enhance the stability of international financial markets indicates the recent global financial crisis as a major turning point in the evolution of the international financial and monetary system

the real effects of the bank lending channel abstract this paper studies credit booms exploiting the spanish matched credit register over 2001 2009 we extend khwaja and mian 2008 s loan level estimator by incorporating firm level general equilibrium adjustments higher ex ante bank real estate exposure increases credit supply to non real estate firms but effects are neutralized by firm level adjustments for firms with existing banking relationships however higher bank real estate exposure increases risk taking by relaxing standards of existing borrowers cheaper longer term and less collateralized credit and by expanding credit on the extensive margin to first time borrowers that default substantially more results suggest that the mechanism at work is greater liquidity via securitization of real estate assets

the economic effects of a borrower bailout evidence from an emerging market this paper studies the credit market implications and real effects of one the largest borrower bailout programs in history enacted by the government of india against the backdrop of the 2008 2009 financial crisis the study finds that the stimulus program had no effect on productivity wages or consumption but led to significant changes in credit allocation and an increase in defaults post program loan performance declines faster in districts with greater exposure to the program an effect that is not driven by greater risk taking of banks loan defaults become significantly more sensitive to the electoral cycle after the program suggesting the anticipation of future credit market interventions as an important channel through which moral hazard in loan repayment is intensified

phillips lecture why some times are different macroeconomic policy and the aftermath of financial crises analysis based on a new measure of financial distress for 24 advanced economies in the postwar period shows substantial variation in the aftermath of financial crises this paper examines the role that macroeconomic policy plays in explaining this variation we find that the degree of monetary and fiscal policy space prior to financial distress that is whether the policy interest rate is above the zero lower bound and whether the debt to gdp ratio is relatively low greatly affects the aftermath of crises the decline in output following a crisis is less than 1 when a country possesses both types of policy space but almost 10 when it has neither the difference is highly statistically significant and robust to the measures of policy space and the sample we also consider the mechanisms by which policy space matters we find that monetary and fiscal policy are used more aggressively when policy space is ample financial distress itself is also less persistent when there is policy space the findings may have implications for policy during both normal times and periods of acute financial distress

residual demand curves for modeling the effect of complex offering conditions on day ahead electricity markets residual demand curves rdcs can be used to represent the strategic interaction of participants in electricity markets rdcs relate the energy that an agent can buy or sell in one hour with the clearing market price that would be obtained in such hour assuming the market is organized as simple bid independent auctions despite the fact that they have been widely used in the literature the existence of time and or spatial constraints in the market clearing algorithm makes the rdcs not directly applicable this paper tries to overcome these difficulties by extending the concept of rdcs to zonal pricing markets where complex offering conditions and transmission constraints are taken into account therefore the rdcs are redefined in order to capture such effects which are usually neglected or oversimplified a new method for computing the redefined rdcs is established and its application to the iberian electricity market is presented the results show that modeling complex conditions and transmission constraints in rdcs can have a significant effect when compared to the standard approach found in the literature therefore the method presented in this paper modeling the effect of firm s decisions on market prices in a more accurate way

leaning against windy bank lending using a dynamic stochastic general equilibrium model with banking this paper first provides evidence that during the great moderation monetary policy leaned against the wind blowing from the loan market in the us it then shows that the extent to which this occurred delivers a small welfare loss relative to the optimised simple interest rate rule that features only a response to inflation the source of business cycle fluctuations is crucial for the optimality of a leaning against the wind policy in fact the pro cyclical nature of lending creates a trade o between inflation and financial stabilisation when supply shocks are prevalent

the costs of macroprudential policy abstract central banks increasingly rely on macroprudential measures to manage the financial cycle however the effects of such measures on the core objectives of monetary policy to stabilise output and inflation are largely unknown in this paper we quantify the effects of changes in maximum loan to value ltv ratios on output and inflation we rely on a narrative identification approach based on detailed reading of policy makers objectives when implementing the measures we find that over a four year horizon a 10 percentage point decrease in the maximum ltv ratio leads to a 1 1 reduction in output as a rule of thumb the impact of a 10 percentage point ltv tightening can be viewed as roughly comparable to that of a 25 basis point increase in the policy rate however the effects are imprecisely estimated and the effect is only present in emerging market economies we also find that tightening ltv limits has larger economic effects than loosening them at the same time we show that changes in maximum ltv ratios have substantial effects on credit and house price growth using inverse propensity weights to rerandomise ltv actions we show that these effects are likely causal

the risk of financial crises is there a role for income inequality abstract could macroeconomic factors such as income inequality be the real root cause of financial crises we explore a broad variety of financial and macroeconomic variables and employ a general to specific model selection process to find the most reliable predictors of financial crises in developed countries over a period of more than 100 years our in sample results indicate that income inequality has predictive power beyond loan growth and several other financial variables out of sample forecasts for individual predictors show that their predictive power tends to vary considerably over time but income inequality has predictive power in each forecasting period

what determines output losses after banking crises abstract we examine the output costs associated with 150 banking crises using cross country data for years after 1970 many banking crises do not lead to contractions and most banking crises do not lead to large contractions a result that holds for developed and developing economies we examine which variables help to predict output changes after a banking crisis using bayesian model averaging for developed economies we find that the output losses are positively related to prior economic conditions such as credit growth for low income economies we find that other factors such as having a stock market and deposit insurance are more important

level and dynamics of financial depth consequences for volatility of gdp abstractthe existing literature documents positive but potentially non linear relationship between financial depth measured as private credit to gdp ratio and volatility of gdp in this paper we e

cross of euros the eurozone currently confronts severe short run macroeconomic adjustment problems and a deficient institutional architecture that has to be reformed in the longer run europe s efforts at economic and monetary union are historically unprecedented however the gold standard provides lessons regarding what will and won t work macroeconomically and politically in the short run while us history provides long run lessons regarding appropriate institutional structures the latter also suggests that institutional reform only happens at times of great crisis and that it cannot be taken for granted the eurozone s leaders may therefore ultimately have to take heed of the lessons of history regarding currency union breakups