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This Time Is Different: Eight Centuries of Financial Folly
Abstract and Figures
Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes--from medieval currency debasements to today's subprime catastrophe. Carmen Reinhart and Kenneth Rogoff, leading economists whose work has been influential in the policy debate concerning the current financial crisis, provocatively argue that financial combustions are universal rites of passage for emerging and established market nations. The authors draw important lessons from history to show us how much--or how little--we have learned. Using clear, sharp analysis and comprehensive data, Reinhart and Rogoff document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. They examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur. An important book that will affect policy discussions for a long time to come, This Time Is Different exposes centuries of financial missteps.
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... US real interest rate (right axis) Countries in default (left axis) The data of countries in default are from Reinhart and Rogoff (2009). The U.S. real interest rate is the annual yield on 1-year US treasury bonds minus observed inflation. ...
... The ex-post value we use, following standard practice, is precisely the result of the very protracted process of renegotiation described in the previous section. This is consistent with the evidence in Gelos, Sahay, and Sandleris (2011), which we use to calibrate the model, and in Reinhart and Rogoff (2009): both report an average default duration in the 90s that is roughly half of the duration they report for the 80s. ...
... Economists Reinhart K. and Rogoff K. [29] developed a panel reaction estimation model based on the already mentioned Taylor rule to analyze the quality and effectiveness of European monetary policy. As a result of applying this model, the authors find a significant change in interest rates only in cases of regional, that is, European inflation. ...
The qualitative and quantitative characteristics of the monetary policy of the National Bank of Ukraine (NBU) have been analyzed. It has been proved that this policy, as a part of general regulatory policy of the state, is a set of measures in the area of money’s circulation to be implemented in order to ensure the stability of the monetary and banking system of Ukraine. The crisis in the country's economy, provoked by the war, became a serious challenge for the NBU that requires improvement of the state monetary policy and searching for effective mechanisms needed to be implemented. In this situation, the NBU has to ensure not only the achievement of the national financial system relatively high level of stability, but also move in its regulatory banking policy, which main purpose is consisting now in supporting the value of money, to a comprehensive assessment of the money’s functions in general.
... Según cifras del BCN (2010), en 1988 la actividad económica se desplomó 12.4 por ciento, con un nivel de (hiper)inflación que se situó en 33,547.9 por ciento; (hiper)inflación que representaba un récord histórico en la región latinoamericana en suépoca (Reinhart & Rogoff 2009). ...
Resumen Desde finales de la década de 1970 hasta fines de 1980, Nicaragua sufrió una serie de conflictos armados que causaron importantes efectos a nivel macroeconómico. Datos del Banco Central de Nicaragua (BCN) indican que entre 1978 y 1979 (periodo en que se intensificaron los conflictos en un primer momento), la actividad económica se redujo 7.8 y 26.5 por ciento, respectivamente. Este deterioro macroeconómico se mantuvo hasta finales de 1980, cuando el país vivió una segunda oleada de confrontaciones, las cuales en 1988 se asociaron con una caída de 12.4 por ciento de la actividad económica y una (hiper)inflación superior a 33 mil por ciento anual. Dada esta variación exógena en la coyuntura económica de la época, en el presente estudio se plantea estimar lo que hubiese sucedido en ausencia de dichos conflictos con el Producto Interno Bruto (PIB) per cápita. Haciendo uso del método de 'control sintético', se evidencia que en ausencia de conflictos, el PIB per cápita de Nicaragua, entre 1979 y 2018, habría sido 2.5 veces superior al efectivamente observado. Estos resultados son robustos a la inclusión de covariables, y ante más de 500 distintas especificaciones del modelo estimado.
As the world’s largest bilateral lender to low- and middle-income countries (LMICs), China faces challenges dealing with some sovereign borrowers in debt distress under the Belt and Road Initiative (BRI). The current global sovereign debt landscape suggests that the fundamental challenge of sovereign debt restructuring in the developing world is not China, but rather how to equitably address unsustainable debt owed to multiple categories of creditors. Nonetheless, by offering early-stage debt relief, China can alleviate the burden on borrowers who disproportionately owe significant debt to China and prevent trapping itself in unpaid debts. China’s policy decision will determine whether it can avoid the same mistake that Western creditors made of eventually losing all financial claims on many debt-distressed, heavily indebted poor countries (HIPCs) by the mid-2000s. Furthermore, a considerate approach by China is key to achieving the dual goals of mitigating LMICs’ debt distress and vulnerabilities to climate change by applying a climate-centered approach toward sustainable socio-economic development. China can contribute to creating better global debt governance, which should go hand in hand with global environmental governance and have critical economic, political, and social implications.
This study explores the complex field of finance ethics, providing insights into the many ethical concerns that are prevalent within the financial sector. This study aims to analyze and comprehend the moral quandaries often encountered by professionals in the financial sector, therefore delving into the ethical aspects of financial processes. The study underscores the widespread presence of ethical dilemmas within the realm of finance, emphasizing its important arguments and conclusions. This study aims to identify and analyze the prominent ethical challenges that emerge within the financial industry, including conflicts of interest, insider trading, risk management, and responsible investment. This text examines the ramifications of unethical conduct within the financial sector and emphasizes the significance of ethical decision-making in maintaining the industry's stability and integrity. This study utilizes a rigorous methodology that incorporates a wide range of data sources, including both quantitative and qualitative data. This study involves a comprehensive examination of relevant scholarly works, empirical case studies, and survey data in order to assess and integrate the ethical dimensions within the field of finance. Moreover, it actively participates in ethical analyses and deliberations in order to put forth prospective answers and tactics aimed at cultivating a more ethical financial milieu. This study intends to add to the continuing conversation on the ethics of finance, presenting insights and suggestions that may serve as a compass for ethical decision-making within the business.
Роль жінок у розвитку економічних теорій часто була ігнорована в традиційних викладах економічної думки. Ця стаття спрямована на заповнення цієї прогалини шляхом аналізу внеску та впливу жінок на економічні теорії протягом історії. Шляхом аналізу ключових фігур, їхніх праць та впливу на економічний дискурс, це дослідження спрямоване на висвітлення значущої ролі, яку відіграли жінки у формуванні економічної думки. У статті розглянуто вплив видатних жінок-економісток, таких як Мері Пейлі Маршал, Джоан Робінсон, Елінор Остром, Клаудія Голдін, та інших, на формування та розвиток ключових концепцій економічної науки. Особлива увага приділяється їхньому внеску у розвиток теорій про монополію, конкуренцію, економічну нерівність та соціальну справедливість. Проведено аналіз впливу досвіду жінок на еволюцію економічної думки та підкреслено важливість їхнього внеску у розумінні гендерних аспектів у різних сферах економіки. Через призму дослідження життєвого та наукового внеску жінок-економісток, стаття висвітлює різноманітність підходів та ідей, які вони внесли в економічну науку. Завдяки аналізу внеску жінок у економічну науку, стаття сприяє більш глибокому розумінню важливості гендерної рівності у сфері економіки та розвитку суспільства в цілому. Висновки статті можуть стимулювати подальше дослідження ролі жінок у формуванні економічних теорій та сприяти забезпеченню більшої репрезентації жінок у цій галузі науки.
Resumen La teoría del crecimiento económico indica que éste es mediado por la acumulación de capital, derivada de la inversión. En este proceso el crédito bancario juega un rol importante al canalizar recursos desde ahorrantes hacia inversores. Así, a menudo se ejecutan políticas de fomento al crédito como forma de incentivar el crecimiento. Nicaragua no ha sido la excepción. Dado que tras la crisis de 2018 se evidenció una importante con-tracción del crédito bancario, esto se ha tratado de compensar e.g., con medidas de provisión de liquidez. Este estudio evalúa algunos de los factores que pueden haber limitado la expansión crediticia en Nicaragua, focalizando el análisis sobre el riesgo crediticio. Mediante el uso de la estrategia de Variables Instrumentales, se evidencia que shocks que aumentan el riesgo de crédito, reducen más fuertemente el originamiento de crédito bancario, comparado con shocks de liquidez. De ese modo, aumentos exógenos en el riesgo crediticio, reducen el otorgamiento de crédito significativamente, con rezago de hasta 15 meses; mientras que la liquidez promueve el crédito de forma más estable en el tiempo.
The stagnation of Egyptian living standards in the first half of the 20th century has been widely presumed in economic history. However, this conventional wisdom is partially based on a fragmented body of evidence on aggregate output. In particular, no estimates of national income exist for any extended period prior to World War II. Using a money–based cointegration approach and a new measure of broad money, we exploit Egypt’s intimate economic links with the U.K. to provide the first continuous estimates of GDP for the period 1886–1945. Our estimates are consistent with trends in agriculture and other stylized facts about the Egyptian economy in the late 19th and early 20th century. The empirical results provide qualified support to the conventional wisdom about Egypt’s growth performance in addition to offering a detailed characterization of output cycles.
The sterilization of capital inflows at the start of a price stabilization program may give rise to future pressures to discontinue the program as a result of the unduly high debt-service burden that the sterilization policy may generate.
We highlight how a micro-level analysis of the Great Recession provides us with important clues to understand the origins of the crisis, the link between credit and asset prices, the feedback effect from asset prices to the real economy, and the role of household leverage in explaining the downturn. We hope that our discussion also serves as an example of the usefulness of incorporating microeconomic data and techniques in answering traditional macroeconomic questions.
A dynamic bargaining-theoretic framework is used to analyze multilateral negotiations for rescheduling sovereign debt. The analysis illustrates how various factors, such as the debtor's gains from trade and the level of world interest rates, affect the relative bargaining power of various parties to a rescheduling agreement. If creditor-country taxpayers have a vested interest in maintaining normal levels of trade with debtor countries, then they can sometimes be bargained into making sidepayments. The benefits from unanticipated creditor-country sidepayments accrue to both lenders and borrowers. But the benefits from perfectly anticipated sidepayments accrue entirely to borrowers.
Drawing on the research achievements on rice prices made in the Qing Dynasty, the Republic of China, and New China, this paper
arranges, estimates and observes the statistical data on rice prices in the country over the past three-and-a-half centuries.
This paper includes the following four aspects: first of all, it assembles and reorganizes the original data of rice market
prices marked in various forms of money in different historical periods since the Qing Dynasty; then it converts the original
data of rice prices into the nominal rice price index by making use of the numerical exchange relations between different
currencies developed in the past revolution and evolution of monetary systems; and then it converts the nominal rice price
into real rice price data in conjunction with the arrangement and estimation results of the general price index; and finally,
it makes a brief observation of and comment on some features of long-term changes of real rice prices.
Using a formula for intervention profits in which profitability measured as of date T depends on how well intervention operations predict ex post deviations from interest parity, this paper shows that US intervention since the beginning of generalized floating in 1973 has earned profits for the US monetary authorities. Fundamental explanations for the profitability of US intervention are difficult to isolate, but statistical tests suggest that it is unlikely the profits are merely the outcome of chance or a normal return to bearing time-invariant risk.
Governments face conflicting objectives in terms of the provision and design of safety nets for banking systems. Safety nets may reduce market discipline and can thus increase the likelihood of a banking crisis. But safety nets are adopted because of the perceived benefits they will confer in either preventing a weak banking system from spilling over into a full-blown crisis or in enabling the government to handle a crisis more effectively. This paper provides evidence on the effects of government safety nets on both these aspects and discusses implications for policy.
This paper traces the history of prices and wages in European cities from the fourteenth century to the First World War. It is shown that the divergence in real incomes observed in the mid-nineteenth century was produced between 1500 and 1750 as incomes fell in most European cities but were maintained (not increased) in the economic leaders.