Schools of Economic Thought

1) Keynesian Economics by Alan S. Blinder
2) New Keynesian Economics by N. Gregory Mankiw
3) Neoclassical Economics by E. Roy Weintraub
4) Marginalism by Steven E. Rhoads
5) Austrian School of Economics by Peter J. Boettke
6) New Classical Macroeconomics by Kevin D. Hoover
7) Marxism by David L. Prychitko
8) Mercantilism by Laura LaHaye

A general Classification

Nice Quotes

"It is astonishing what foolish things one can temporarily believe if one thinks too long alone, particularly in economics [...]" Keynes, The General Theory. p. vii.

FDIC Approves ‘Living Wills’ Rule for Largest Bank Failures

Banks are required, under the new Dodd-Frank Act, to have written contingency plans (Living Wills) that allow the FDIC to orderly liquidate banks when necessary. As the Count de Mollien said:  "Pour ne jamais finir, une banque doit etre toujours prete a finir." (In order never to close, a bank should always be prepared to close, Cited in: Dalla Volta, Richard. Journal of Political Economy. Vol. 2, No.1, (Dec, 1993)).

European Debt Crisis and the Diamond and Dybvig's Model (Bank Runs)

The current European Debt Crisis goes as follows: Some countries are at risk of default (Italy, Portugal, Spain) or have already defaulted on part of their debt (Greece). European financial institutions (Banks) are heavily invested in sovereign bonds. Fearing sovereign defaults, banks have cut down their investments on sovereign  bonds, drying up government funding and increasing their borrowing rates. This, in turn, makes the default scenario more likely for some countries which have to refinance their debt at higher interest rates. However, banks still have a great amount of investments in such suspected-to-default countries. They can  get rid of troubled sovereign bonds ut only at fire-sales  prices.

The Diamond and Dybvig's model helps understanding the situation. Governments are like banks, they take money from banks and private investors  (as banks do from depositors), expend it (like banks make loans), and hope to repay  (as banks hope to repay depositors) with tax revenues (equivalent to banks revenues from loans). When banks and private investors (depositors) fears that governments won't have enough tax income to repay, they withdraw their deposits, not by actually withdrawing money, but by stopping future debt refinancing to suspected-to-default governments.

In essence, the European Debt Crisis has the same ingredients that a regular bank run scenario. However, bankers are now depositors, and governments are the bankers. How to stop a bank run? 1) Create deposit insurance or 2) Let a lender of last resort step in.  Since the European Central Bank (ECB) can not directly lend to governments (the now bankers) it can not act as a lender of last resort for them. However, the newly announced program to lend generously to banks at very low interest rates allows the ECB to essentially act as the lender of last resort governments (bankers) need. The ECB rejected proposals to create an emergency deposit insurance for governments (bankers).  It did so by not buying trouble assets directly. Instead, it will lend money to regular banks, hoping these banks will buy trouble assets at higher interest rates and make a profit. Banks secure the ECB loans by putting the assets they will buy as collateral.

This is like giving depositors money to invest in banks when the likelihood of a bank run increases. Depositors secure these loans offering their risky deposits as collateral. However, it is not clear how this strategy will play out. I think the ECB strategy is novel in the sense that it gives depositors (read banks) long-term loans so that they can mitigate the need to run the suspected-to-default governments. In the Diamond and Dybvig model, depositors run the banks when they suspect the bank won't have enough to repay them and decide they have a better chance to be repaid by running to the bank.

Certainly, it buys some time for governments (bankers) to reduce their deficits alleviating short term pressures. However, banks may not follow through the strategy and they can divest the newly available money to substitute their risky assets for safer ones.

M.I.T. Expands Its Free Online Courses

New MIT Free Online Courses
Other free Courses are available at: VideLectures.Net

New Monetary Policy

In this article Christina Romer points out toward a different monetary policy strategy: Targeting Nominal GDP.
Targeting Nominal GDP, not Inflation.  From the NY Times.

Tips for a successful Job Interview

Tips to landing a job (From the New York Times)

European Debt and Bank Crisis

From the Fed, a Shield Against Europe By TYLER COWEN 

Recent Develpments European Debt Crisis (From the NY Times)

European Debt Crisis Interactive Map (From the NY Times) 

It’s All Connected: An Overview of the Euro Crisis 

Bank funding, The dash for cash: Europe’s troubled banks are running out of money (The Economist)

The European Union in disarray. A comedy of euros Britain had a bad summit, but the euro zone had a worse one (The Economist)

Demand Is High for Euro Loans From Central Bank (NYTIMES)

Monetary and fiscal policies in times of crisis (ECB)

Governments saving banks so that banks save governments

Interesting article from The Economist:

European banks: Staggering to the rescue

Available at: http://www.economist.com/node/21541858

R Software and Revolution Analytics

R is an excellent free software for statistics and econometrics computing. I recently tried the Revolution Analytics (http://www.revolutionanalytics.com/) platform for R (which is free for academics), and I loved it. R is faster and more powerful (e.g. use more cores and more RAM) under Revolution Analytics.

You can download a free version for academic use from Revolution Analytics here: (http://www.revolutionanalytics.com/downloads/free-academic.php) .

I strongly recommend it.

Design and Teach Your Course

Resources for Teaching Assistants and Assistant Professors from Carnegie Mellon University:
1) Design and Teach a Course.
2) Principles of Teaching and Learning.

Tuition Subsidies

In this article "U.S. Universities Feast on Federal Student Aid: Virginia Postrel", the author gives a very nice example of the unintended consequences of subsidy policies. Government subsidies to higher education in the U.S., aimed at increasing college enrollment, may have ended up increasing tuition costs. The economics at work are easy to understand and familiar to economists: the ultimate owner of any input of a production process  (higher education in this case)  rips the benefits of artificially increasing its demand (through subsidies).

LaTeX Instalation Instructions

Writing is the economics and finance research trade. So, you need a software to ease your life.  I learned LaTeX and it simplified mine. It can be challenging at the beginning but it pays off nicely after a short while.

Here is a good link to get you started:  "Get Started with LaTEX". It describes which software you have to have and how to get it. You will need Ghostcript (The viewer software), MikTeX (The best LaTex Distribution), and TeXmaker (The best text editor). They are available free of charge. That's all you will need to write your papers, articles, and books and have them ready for publication.

Free Online Courses for Financial Economists.

This is a list of Free Online Courses for Financial Economists:


From Yale University
Financial Theory 
Financial Markets with Professor Robert Shiller
Game Theory with Professor Ben Polak

From Standford University
Probabilistic Graphical Models with Daphne Koller
Game Theory with Matthew Jackson and Yoav Shoham
Model Thinking with Scott E Page

For more free online courses visit: Open Culture-Free Economic Courses.

Is Modern Capitalism Sustainable?

Here it's a great article by Kenneth Rogoff on capitalism's fate.
http://www.project-syndicate.org/commentary/rogoff87/English