Paul Krugman, 18 November 2010

Debt is the crux of advanced economies’ current policy debates. Some argue for fiscal expansion to avoid recession and deflation. Others claim that you can’t solve a debt-created problem with more debt. This column explains the core logic of a new model by Eggertsson and Krugman in which debt shocks and policy reactions can be examined. Relying on heterogeneous agents, the model naturally produces the paradox of thrift but also finds new supply-side paradoxes, those of toil and flexibility. The model suggests that most economists have been misthinking the issues and that actual policy in the US and EU is misguided.

Charles Wyplosz, 03 May 2010

Eurozone members, the IMF, and the ECB have announced significant commitments to assist debt-laden Greece. This column outlines a dark scenario in which the plan fails and contagion spreads, necessitating further assistance to other indebted Eurozone governments. That could risk high inflation or debt problems for the entire Eurozone.

Carmen Reinhart, 09 April 2010

Carmen Reinhart of the University of Maryland talks to Romesh Vaitilingam about the sequencing of the cycle of debt build-ups – from private debt surges to banking crises to sovereign debt crises – and the four ‘deadly D’s’ that once again threaten many governments as a consequence of the current crisis – deficits, debt, downgrade and default. The interview was recorded at the Royal Economic Society’s annual conference at the University of Surrey in March 2010.

Domingo Cavallo, 13 November 2009

Domingo Cavallo, former minister of economy and minister of foreign affairs in Argentina, talks to Romesh Vaitilingam about the dangers of a future resurgence in world inflation, as economies that have adopted very expansionary monetary and fiscal policies in response to the crisis are tempted to ‘inflate away the debt’. The interview was recorded at the Global Economic Symposium in Schleswig-Holstein in September 2009.

Enrique Mendoza, 12 February 2009

This column rehabilitates Irving Fisher’s debt-deflation theory to explain the current crisis. It suggests that fiscal stimulus will do little to prevent the crisis from becoming a protracted slump because the problem lies in finance. A cure will require reversing deflation and restarting the credit system.

Carmen Reinhart, 26 January 2009

Financial crises are historically associated with the “4 deadly D’s”: Sharp economic downturns follow banking crises; with government revenues dragged down, fiscal deficits worsen; deficits lead to debt; as debt piles up rating downgrades follow. For the most fortunate countries, the crisis does not lead to the deadliest D: default, but for many it has.

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