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- Carmen Reinhart recommended expanding the paper's scope to a more international setting, given that the crisis is global. A global framework would be particularly useful for the treatment of inflation expectations, because in only two postwar banking crises did the crisis country's currency actually appreciate: Japan in the 1990s and the United States today. More generally, when one looks at all the new facilities that have been created, it is clear that the buyers were coming from somewhere else, and the setting of interest rates thus has a distinctly global element. 182 Brookings Papers on Economic Activity, Fall
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- In Reis's view, if the collateral had really been good, private institutions would have lent against it. However, as has been recognized since Bagehot, private lenders, acting to protect themselves, typically severely curtail lending during a financial crisis, irrespective of the quality of the 2. My colleague Brian Madigan (2009) evaluated the Federal Reserve's recent policies from this perspective.
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- To anyone familiar with financial history (see, for example, Kindleberger 1989), there is perhaps nothing surprising about this. Recent events thus provide a big challenge to economic modeling and policy analysis. Similar-looking events have occurred in the past, but they were rare; hence, deciding what is specific to the present case and what emerges as a general phenomenon requires careful judgment. It is a pipe dream to think that one can build a coherent macroeconomic model that does justice to the richness of modern financial sectors. Models are generally useful in economics because they are intelligible--they are judicious simplifications that can describe general effects. But the complexity of the events leading up to a major global crisis like this one can almost certainly not be captured in a stylized model.
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Woodford, Michael. 1995. Price-Level Determinacy without Control of a Monetary Aggregate. Carnegie-Rochester Conference Series on Public Policy 43: 146.