PDF《Liquidity烬nd炉he燰eil爋f焖inance? ?》

This?draft:?June?28,?2013? ? ? ? ? ? PUZZLING?OVER?THE?ANATOMY?OF?CRISES:? Liquidity?and?the?Veil?of?Finance? ? Guillermo?Calvo*? Columbia?University?and?NBER? ? ? ? Abstract.

??The?paper?claims?that?conventional?monetary?theory?obliterates?the?central?role?played?by? media?of?exchange?in?the?workings?and?instability?of?capitalist?economies;

?and?that?a?significant?part?of? the?financial?system?depends?on?the?resiliency?of?paper?currency?and?liquid?assets?that?have?been?built? on?top?of?it.??The?resilience?of?the?resulting?financial?tree?is?questionable?if?regulators?are?not?there?to? adequately?trim?its?branches?to?keep?it?from?toppling?by?its?own?weight?or?minor?wind?gusts.??The?issues? raised?in?the?paper?are?not?entirely?new?but?have?been?ignored?in?conventional?theory.??This?is?very? strange?because?disregard?for?these?key?issues?has?lasted?for?more?than?half?a?century.??Are?we?destined? to?keep?on?making?the?same?mistake???The?paper?argues?that?a?way?to?prevent?that?is?to?understand?its? roots,?and?traces?them?to?the?Keynes/Hicks?tradition.??In?addition,?the?paper?presents?a?narrative?and? some?empirical?evidence?suggesting?a?key?channel?from?Liquidity?Crunch?to?Sudden?Stop,?which?supports? the?view?that?liquidity/credit?shocks?have?been?a?central?factor?in?recent?crises.??In?addition,?the?paper? claims?that?liquidity?considerations?help?to?explain?(a)?why?a?credit?boom?may?precede?financial?crisis,?(b)? why?capital?inflows?grow?in?the?run\up?of?balance\of\payments?crises,?and?(3)?why?gross?flows?are?pro\ cyclical.? ? ? ? ? ? ? ? ? ? ? *? Background?paper?for?the?Mayekawa?Lecture?at?the?Institute?for?Monetary?and?Economic?Studies?Conference,? Bank?of?Japan,?May?29\30,?Tokyo,?Japan.??I?wish?to?thank?Pablo?Ottonello?for?useful?comments.? ? 1? ? I. Introduction? General?equilibrium?theory?and?monetary?theory?are?strange?bedfellows.??General?equilibrium?theory? can?achieve?Olympian?heights?without?any?reference?to?money.??Monetary?theory,?in?turn,?cannot?run?on? its?own?without?some?reference?to?the? real?economy, ?which?is?the?realm?of?general?equilibrium?theory.?? The?secondary?role?traditionally?attributed?to?money?is?best?portrayed?by?the?classical?expression? veil?of? money. ??Money?is?just?there?to?determine?nominal?prices,?and?no?more?than?that.??Of?course,?that? extreme?view?has?been?debunked?by?Irving?Fisher'

s? money?illusion ?C?i.e.,?the?tendency?of?some? economic?agents?to?confuse?nominal?with?real?variables?C?and? price?stickiness ?emphasized?in? Keynesian?models.??However,?money?still?plays?a?second\fiddler?role.??Whenever?possible?theorists? prefer?to?work?in?terms?of?models?in?which?money?is?absent.??This?state?of?affairs?among?theorists? contrasts?sharply?with?the?current?macroeconomic?policy?debate?in?which? liquidity ?C?a?quality?that? money?exhibits?but?is?not?alone?in?that?respect?C?has?taken?center?stage.??Several?observers?attribute?the? real?estate?boom?to?a?liquidity?mirage?and?deep?crisis?following?the?Lehman?2008?episode?to?a?liquidity? crunch.??Moreover,?it?is?common?to?hear?that?liquidity?crunch?seriously?compromised?the?health?of?the? financial?sector?and?is?behind?slow?and?jobless?recovery.??None?of?these?issues?can?be?found?addressed?in? a?useful?manner?in?conventional?general?equilibrium?or?monetary?theory.? Part?of?the?reason?is?that?conventional?monetary?theory?ignores?crises?that?stem?from?the?financial? sector.??This?shows?another?victory?of?general?equilibrium?methodology,?where,?in?its?pure?form,?the? word?credit?is?replaced?by? intertemporal?and?state\contingent?prices, ?and?market?disruption?is?not? highlighted.??Thus,?conventional?theory?has?acknowledged?the?fact?that?money?is?not?neutral?but?has,? unwittingly?perhaps,?adopted?the?view?of? finance?as?veil. ??It?should?thus?come?as?no?great?surprise?that? the?Fed?and?many?other?prominent?world?central?banks?have?ignored?a?possible?malfunctioning?credit? market?in?their?design?of?monetary?policy?(e.g.,?Inflation?Targeting)?C?and?found?themselves?bereft?of? ideas?and?instruments?when?hit?by?the?current?crisis.1 ? Nature?abhors?a?vacuum:?bad?theory?quickly?takes?the?place?of?no?theory?C?or,?at?least?that?is?the?risk?we? are?running.??I?do?not?claim?to?have?the?magic?key,?but?in?this?paper?I?will?try?to?put?forward?variables?and? considerations?that?I?think?are?central,?but?ignored?by?conventional?theory,?like?liquidity?and?credit? crunch?(or?Sudden?Stop).??To?that?end?I?will?bring?to?bear?empirical?studies?that?show?the?relevance?of? those?variables,?and?discuss?some?open?puzzles.??In?addition,?I?will?trace?the?intellectual?roots?behind? finance?as?a?veil.? Section?II?will?show?channels,?relevant?from?a?macro?point?of?view,?through?which?a?liquidity?crisis? becomes?a?Sudden?Stop.??Section?III?will?briefly?discuss?some?relevant?empirical?results?that?highlight?the? importance?and?peculiarities?of?the?credit?market?in?crisis?episodes.??Section?IV?is,?in?a?manner?of? speaking,?a?visit?to?the?shrink?in?which?I?try?to?sort?out?the?reasons?why,?for?a?long?period?of?time,?most? mainstream?economists?have?been?oblivious?of?financial?shocks?C?a?feature?that?still?lingers?on?in?the? well\trained?economist'