News/Op-Eds John Cochrane News/Op-Eds John Cochrane

Europe's Greek Stress Test

Wall Street Journal, with Anil Kashyap. Local pdf. Why is Europe so scared to let Greece reschedule just a bit? Answer: because their banks holding Greek debt. Greece isn't being bailed out -- they'd rather defaut than work a year and a half just to pay off old debts. Bondholders are being bailed out, and those are mostly banks. So much for the wonders of bank regulation. Europe needs to fix its banks pronto, because the sovereigns will default. The default doesn't have to imply a financial crisis.

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Wall Street Journal, with Anil Kashyap. Local pdf. Why is Europe so scared to let Greece reschedule just a bit? Answer: because their banks holding Greek debt. Greece isn't being bailed out -- they'd rather defaut than work a year and a half just to pay off old debts. Bondholders are being bailed out, and those are mostly banks. So much for the wonders of bank regulation. Europe needs to fix its banks pronto, because the sovereigns will default. The default doesn't have to imply a financial crisis.

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News/Op-Eds John Cochrane News/Op-Eds John Cochrane

Is QE2 a Savior, Inflator or a Dud?

Bloomberg.com (Booth "Business Class" Series). Local copy Why quantiative easing has no direct effect. It slightly shortens the maturity structure of Government debt, which makes us more vulnerable to a run. Most of all, it is a big mistake for the Fed to claim to be in charge of everything when it's really powerless.

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Bloomberg.com (Booth "Business Class" Series). Local copy Why quantiative easing has no direct effect. It slightly shortens the maturity structure of Government debt, which makes us more vulnerable to a run. Most of all, it is a big mistake for the Fed to claim to be in charge of everything when it's really powerless.

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News/Op-Eds John Cochrane News/Op-Eds John Cochrane

Why the 2025 budget matters today

Wall Street Journal. Long term deficits and short term debt leave us vulnerable to a run on the dollar and stagflation. A simple summary of "Understanding policy in the great recession." Local pdf copy for those without WSJ access.

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Wall Street Journal. Long term deficits and short term debt leave us vulnerable to a run on the dollar and stagflation. A simple summary of "Understanding policy in the great recession." Local pdf copy for those without WSJ access.

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News/Op-Eds John Cochrane News/Op-Eds John Cochrane

Understanding fiscal and monetary policy in the great recession: Some unpleasant fiscal arithmetic

European Economic Review 55 2-30 ScienceDirect Link
Why there was a big recession; will we face inflation or deflation, can the Fed do anything about it in the face of looming deficits? This is a longer article, expanding on themes below and making some of the arguments precise, with a few equations. Yes, fiscal stimulus is possible..(a teaser)

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European Economic Review 55 2-30 ScienceDirect Link
Why there was a big recession; will we face inflation or deflation, can the Fed do anything about it in the face of looming deficits? This is a longer article, expanding on themes below and making some of the arguments precise, with a few equations. Yes, fiscal stimulus is possible..(a teaser)

Read More >

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News/Op-Eds John Cochrane News/Op-Eds John Cochrane

Quantitative Easing

Local copy of Sense and Nonsense in the Quantitative Easing Debate. which appeard VoxEu ec 7 2010. The great savior and stimulator, or the beginning of devaluation and inflation? Actually, neither -- both sides keep forgetting that money and short term debt are the same thing when interest rates hit zero. All this does is to shorten the maturity structure of Government debt. However, that's not such a good thing -- it makes us more vulnerable to Greek style crises. Also a short reminder about the Friedman rule. 2013 note to some crazy bloggers who claim I've been an inflation maven, the section "no inflationary effect" documents some facts.

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Local copy of Sense and Nonsense in the Quantitative Easing Debate. which appeard VoxEu ec 7 2010. The great savior and stimulator, or the beginning of devaluation and inflation? Actually, neither -- both sides keep forgetting that money and short term debt are the same thing when interest rates hit zero. All this does is to shorten the maturity structure of Government debt. However, that's not such a good thing -- it makes us more vulnerable to Greek style crises. Also a short reminder about the Friedman rule. 2013 note to some crazy bloggers who claim I've been an inflation maven, the section "no inflationary effect" documents some facts.

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News/Op-Eds John Cochrane News/Op-Eds John Cochrane

Stimulus, RIP

A last piece on fiscal stimulus, as we all decide whether it was the great savior of the recession, or an ineffective idea ready to go on the ash-heap of bad ideas. Guess what I think. I explain the Barro theorem, how it constrains the debate even if it isn't literally true (how it's false matters a lot), and I respond to Krugman and Delong's latest outrages, in particular the claim that stimulus opponents have no model.

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A last piece on fiscal stimulus, as we all decide whether it was the great savior of the recession, or an ineffective idea ready to go on the ash-heap of bad ideas. Guess what I think. I explain the Barro theorem, how it constrains the debate even if it isn't literally true (how it's false matters a lot), and I respond to Krugman and Delong's latest outrages, in particular the claim that stimulus opponents have no model.

Read More >

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News/Op-Eds John Cochrane News/Op-Eds John Cochrane

Inflation or deflation?

I’m giving several talks with this title, based on more serious analysis in Understanding fiscal and monetary policy in the great recession. Slides that go with the paper. Here is a video of a short presentation given to the University Alumni Club in New York, October 2010. Fiscal theory in 20 minutes, with a fun introduction by Cliff Asness. Slides for the New York talk. The talk I gave at the NBER EFG Oct 23 2009.

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I’m giving several talks with this title, based on more serious analysis in Understanding fiscal and monetary policy in the great recessionSlides that go with the paper. Here is a video of a short presentation given to the University Alumni Club in New York, October 2010. Fiscal theory in 20 minutes, with a fun introduction by Cliff Asness. Slides for the New York talk. The talk I gave at the NBER EFG Oct 23 2009.

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News/Op-Eds John Cochrane News/Op-Eds John Cochrane

Geithner's Global Central Planning

Wall Street Journal. Local copy Literary analysis of Treasury Secretary Tim Geithner's Letter to the G-20. "Global imbalances," "structural policy," "credible medium-term fiscal targets," "strengthen export performance," "support global demand." What does all this mean anyway? Are these all just BS bingo entries to keep staff from falling asleep at global conferences? Sorry, Mr. Geithner, I know it's your job to mouth these platitudes, but there are real issues to be dealth with and someone might take this stuff seriously.

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Wall Street Journal. Local copy Literary analysis of Treasury Secretary Tim Geithner's Letter to the G-20. "Global imbalances," "structural policy," "credible medium-term fiscal targets," "strengthen export performance," "support global demand." What does all this mean anyway? Are these all just BS bingo entries to keep staff from falling asleep at global conferences? Sorry, Mr. Geithner, I know it's your job to mouth these platitudes, but there are real issues to be dealth with and someone might take this stuff seriously.

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News/Op-Eds John Cochrane News/Op-Eds John Cochrane

A Big Stick for the Fed

This is a draft oped that didn't make it to the Wall Street Journal. Probably with good reason. I'm thinking about the deflation quandary, and that the Fed may be powerless to stop deflation. How can you implement a commodity standard as a backstop in the US? I think about targeting the TIPS spread. Commodity standards are essentially fiscal commitments; that's the big stick the Fed is missing. Targeting the TIPS spread or equivalent CPI-linked securities could provide the backstop to prevent deflation, and allow the Fed to make the fiscal commitments necessary to stop inflation or deflation.

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This is a draft oped that didn't make it to the Wall Street Journal. Probably with good reason. I'm thinking about the deflation quandary, and that the Fed may be powerless to stop deflation. How can you implement a commodity standard as a backstop in the US? I think about targeting the TIPS spread. Commodity standards are essentially fiscal commitments; that's the big stick the Fed is missing. Targeting the TIPS spread or equivalent CPI-linked securities could provide the backstop to prevent deflation, and allow the Fed to make the fiscal commitments necessary to stop inflation or deflation.

Read More >

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News/Op-Eds John Cochrane News/Op-Eds John Cochrane

A Skeptical Appraisal of Frictions in the Financial Crisis

Notes and Pictures. This is a 2 hour lecture for Ph.D. students at the Deutsche Bank Symposium hosted by the Booth School September 2010. It offers a skeptical view of the emerging consensus that the financial crisis is all about "bubbles" "liquidity spirals" "fire sales" "capital constraints" at commercial banks and so on. I do think there was a run on repo and short term financing. Good old fashioned macro asset pricing works a lot better than you might have thought. Some themes are picked up in Discount Rates.

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Notes and Pictures. This is a 2 hour lecture for Ph.D. students at the Deutsche Bank Symposium hosted by the Booth School September 2010. It offers a skeptical view of the emerging consensus that the financial crisis is all about "bubbles" "liquidity spirals" "fire sales" "capital constraints" at commercial banks and so on. I do think there was a run on repo and short term financing. Good old fashioned macro asset pricing works a lot better than you might have thought. Some themes are picked up in Discount Rates.

Read More >

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News/Op-Eds John Cochrane News/Op-Eds John Cochrane

New Yorker interview 

John Cassidy’s piece in the New Yorker isn’t very flattering about Chicago to say the least. He was decent enough to post the full interviews, which sound a lot more sensible, at least to me. His interview with Gene Fama is here.

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John Cassidy’s piece in the New Yorker isn’t very flattering about Chicago to say the least. He was decent enough to post the full interviews, which sound a lot more sensible, at least to me. His interview with Gene Fama is here.

Read More >

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