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From VoxEU – Wellbeing inequality in retrospect

A must read – Leandro Prados de la Escosura (databases and open access book on inequality)

The Long Run

Rising trends in GDP per capita are often interpreted as reflecting rising levels of general wellbeing. But GDP per capita is at best a crude proxy for wellbeing, neglecting important qualitative dimensions. 36 more words

via Wellbeing inequality in retrospect — Recent Articles

To elaborate further on the topic, Prof. Leandro de la Escosura has made available several databases on inequality, accessible here, as well as a book on long-term Spanish economic growth, available as open source here

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Are Macroprudential Tools as Caring and Forethinking as They Claim to Be? Financial Stability and Monetary Policy in the Long Run

An Historical Perspective on the Quest for Financial Stability and the Monetary Policy Regime

By Michael D. Bordo (Rutgers University)

Abstract: This paper surveys the co-evolution of monetary policy and financial stability for a number of countries across four exchange rate regimes from 1880 to the present. I present historical evidence on the incidence, costs and determinants of financial crises, combined with narratives on some famous financial crises. I then focus on some empirical historical evidence on the relationship between credit booms, asset price booms and serious financial crises. My exploration suggests that financial crises have many causes, including credit driven asset price booms, which have become more prevalent in recent decades, but that in general financial crises are very heterogeneous and hard to categorize. Two key historical examples stand out in the record of serious financial crises which were linked to credit driven asset price booms and busts: the 1920s and 30s and the Global Financial Crisis of 2007-2008. The question that arises is whether these two ‘perfect storms’ should be grounds for permanent changes in the monetary and financial environment.


Distributed by NEP-HIS on: 2018-01-15

Review by: Sergio Castellanos-Gamboa (Bangor University)


In this paper Michael Bordo presents empirical historical evidence to analyze the incidence of credit-driven asset price booms and the extent to which they cause deep financial crises. The main argument of the paper is that we have to consider very carefully whether monetary policy should suffer a structural transformation whenever a rare “perfect storm” event occurs. Bordo supports this argument by looking at the correlation between and possible causality from credit-driven asset price booms to financial crises. The relation, he argues, is rather weak. Nonetheless, the consequences of implementing restrictive monetary policies when these events happen can be significantly bad in the long run.

The paper begins by reviewing the historical evolution of monetary and financial stability policy. In section 2 the author summarizes the appearance of central banks and the evolution of their functions and responsibilities, mainly as lender of last resort (LLR), across five diBordosq.jpgfferent periods: the “Classical Gold Standard”, the “Interwar and World War II”, the “Bretton Woods” period between 1944-1973, the “Managed Float Regime” between 1973-2006, and the “Global Financial Crisis”.

The next section of the paper deals with the measurement of financial crises in historical perspective. It starts by clarifying the definition of financial crises and looking at how this definition has changed from describing a banking panic to include “too important to fail” institutions, currency crises, sovereign debt crises, credit-driven asset price booms, sudden stops, and contagions. Of these crises, Bordo identifies five of them as global: 1890-1891, 1907-1908, 1913-1914, 1931-1932, and 2007-2008. He then turns to report the output losses of those global financial crises, using the cumulative percentage deviation of GDP per capita from the pre-crisis trend level of per capita GDP. He finds that in “the pre-1914 era the losses ranged from 3% to 6% of GDP. For the interwar period, driven by the Great Depression they are much larger – 40%. In the post Bretton Woods period losses are smaller than the interwar but larger than under the gold standard”. Finally, he finds that output losses in the period after 1997 are larger than in the pre-1914 period. The author ends this section by analysing the determinants of financial crises. Using a meta-study he concludes that financial crises are quite heterogeneous, and no particular factor stands out as a main determinant for their occurrence.

Section 4 of the paper reviews the historical narrative of a subset of 12 cases to evaluate the extent to which credit-driven asset price booms have been an important cause of financial crises. Bordo argues that although after the 2007-2008 crisis this factor has become more relevant, this was not the case before the collapse of Bretton Woods, with a few exceptions before World War II. Section 5 looks deeper into the relationship among credit booms, asset price booms, and financial crises using a business cycle methodology with a sample of 15 advanced countries from 1880 onwards. Once again, there is evidence that “suggests that the coincidence between credit boom peaks and serious financial crises is quite rare”. Moreover, credit booms do not seem to be highly correlated with asset price booms (except for the Great Depression and the Global Financial Crisis).

 The paper concludes by stating that there are four key principles to be followed to have a stable monetary policy regime that can be compatible with financial stability. These are: price stability, real macro stability, a credible rules-based LLR, and sound financial supervision and regulation and banking structure. These principles do not suggest that financial stability has to be elevated to the same level of importance as price stability or macroeconomic stability, and that implementing macroprudential tools to restrict monetary policy after a “perfect storm” can be more dangerous than beneficial in the long run.


This paper brings important elements to the debate of whether implementing macroprudential tools is the right path to achieve financial stability. Moreover, Bordo raises a critical question that has not been properly addressed in the literature. To what extent can macroprudential tools be harmful for long-run economic growth? Additionally, the author invites us to question whether central banks should undertake activities that go beyond monetary policy (as bailing out failing institutions) to the point of putting at risk their credibility and even their independence, as it has already happened in the past.

Once again economic history becomes relevant to understand and shed a new light to contemporary debates. In particular, this paper implements a transparent and simple methodology to analyze whether credit-driven asset price booms can cause financial crises and if monetary policy should be fundamentally transformed when financial markets are hit by a “perfect storm”. The author is quite skeptical of the implementation of restrictive monetary policies to deal with serious financial crises, although there is still considerable room for more research to clarify this debate. Even though Bordo avoids using econometrics to assess this issue, the methodology proposed in this paper can still be subject to the Lucas critique (Lucas 1976). Therefore, there is still the need for a robust methodology that can provide evidence to produce a sound and testable economic theory to thoroughly study and understand this phenomenon.

More important, we still have to ask whether we can differentiate real productivity booms from bubbles. If there is still a lack of knowledge in this area we will not be able to know if we have the appropriate tools to diagnose a bubble and defuse an asset price boom before it bursts. Therefore, we cannot state for sure whether central banks should follow the Greenspan doctrine (Bernanke and Getler 2001), or if they should be more proactive in the procurement of financial stability. Even more and following the main argument of the paper, it is very important to ask and understand if financial stability should be granted the same importance as price stability or the stability of the real macroeconomy. For now, the answer seems to be no, but there also seems to be sufficient evidence to argue that banking should be made boring again (Krugman 2009).


Bernanke, Ben and Mark Gertler (2001). “Should Central Banks Respond to Movements in Asset Prices?” American Economic Review91(2), 253-257.

Krugman, Paul (2009). “Making banking boring.” New York Times, April 10.

Lucas, Robert (1976). “Econometric Policy Evaluation: A Critique.” In Allan H. Meltzer and Karl Brunner. The Phillips Curve and Labor Markets. Carnegie-Rochester Conference Series on Public Policy. 1. New York: American Elsevier, 19–46.

The Wealth of the Other Americas

The Industrialization of South America Revisited: Evidence from Argentina, Brazil, Chile and Colombia, 1890-2010

Gerardo della Paolera (Central European University), Xavier Durán (Universidad de los Andes), Aldo Musacchio (Brandeis University)

Abstract: We use new manufacturing GDP time series to examine the industrialization in Argentina, Brazil, Chile, and Colombia since the early twentieth century. We uncover variation across countries and over time that the literature on industrialization had overlooked. Rather than providing a single explanation of how specific shocks or policies shaped the industrialization of the region, our argument is that the timing of the industrial take off was linked to initial conditions, while external shocks and macroeconomic and trade policy explain the variation in the rates of industrialization after the 1930s and favorable terms of trade and liberalization explain deindustrialization after 1990.


Circulated by NEP-HIS on: 2018‒03‒19

Review by: Thales Zamberlan Pereira (Universidade Franciscana)

The long road of protectionism in Latin America in the decades between 1930 and 1990 led not only to import substitution of goods, but also of ideas. During those decades each country thought its way of development distanced from its neighbors, despite relatively similar schools of thought under the care of the Economic Commission for Latin America and the Caribbean (ECLAC). The result was a myriad of studies focused on peculiarities – what made each country unique in its backwardness – largely ignoring the possibility of comparative perspectives. Of course, comparative studies existed, but the view of Latin America as an object of study until the 1980s was delegated to a secondary place, shared more by international agencies and foreign researchers who sought a more macro understanding of the region.

During the last three decades things changed, but we still feel the effects of these“lost decades”. “Intellectual isolation” was especially true in Brazil, which until today has very few university courses on the economic history of other Latin American countries. The paper of Gerardo Paolera, Xavier Durán, and Aldo Musacchio, therefore, is a much welcome attempt to understand the differences in long-term development in South America using comparative data for Argentina, Brazil, Chile, and Colombia. They present a history of industrialization in these countries putting together series of manufacturing value added, labor productivity in manufacturing, the size of the labor force, and trade series for the whole twentieth century (until 2010, actually). Despite arguing that they estimated new figures when the data was not available, the authors mostly use secondary sources for macroeconomic data (for example, Brazil’s data comes from IPEA, a government agency).

The paper’s main argument is that the long-term series of industrial GDP suggest that the patterns of industrialization in those countries were heterogenous, and initial conditions – such as level of urbanization, literacy and infrastructure development at the end of the 19th century – mattered more for the timing of industrial takeoff than policies or external shocks. Therefore, the authors reject traditional hypotheses that have tried to explain the industrialization of South America using “one single theory”. Among these traditional explanations are the “adverse shocks” hypothesis, industrialization as a product of export-led growth, and industrialization as the product of import substitution industrialization (ISI). The paper then proceeds to explain the differences between the four countries during the following periods: 1) before 1920, 2) the 1920s, 3) the Great Depression, 4) World War II, 5) the 1980s, 6) 1990s and beyond.

According to the paper, the long-term industrial series show that “none of these hypotheses explain all cases for the entire century.” Moreover, changes in external conditions and domestic policies explain part of the variation in the rates of industrialization only after the 1930s. In their review about the different periods of industrialization, the highlight is for the effects of ISI policies on industrialization. They present a “real distorted import price” index – which are import prices multiplied by the average tariff and the nominal exchange rate – to show the correlation between price distortion of imports and growth of manufacturing as a percentage of GDP. This correlation is widely known in the historical literature, but bringing together data for the South American countries helps us to understand the relative size of barriers to trade in each country.

Musacchio et al Fig1

Figure 1: Real Distorted Import Price Index for Argentina, Brazil, Chile and Colombia,
1900-2012 (1939=100)

Paolera, Duran, and Musacchio’s paper is an interesting contribution, however, it is not clear how much of it is a revisionist interpretation of South America’s industrialization. It would be interesting to have a better sense about how much the literature on Latin America industrialization in the twentieth century really argues that the process was homogeneous across countries and that domestic and initial conditions did not matter. Even in books that summarize the literature, such as Bértola and Ocampo (2012) there are clear differences between the countries and initial conditions (their Human Development Index for example).

As a side note, it also feels unnecessary to argue that the countries shared similar culture, religion, and colonial origin to “control” for cross-sectional variation. Is there really a relevant connection between these conditions and different periods and types of industrialization? Besides the fact that many Argentineans, Brazilians, and Chileans will try to “argue” that they have a very different culture (and, in the case of Brazil, colonial origin), it would be good to show if the traditional hypotheses make these connections.

Moreover, since initial conditions (human capital) mattered for industrialization, why is East Asia a proper counterfactual for Latin America? The authors argue that we “need to improve our knowledge” on this issue, but it feels there is room to present more recent research about the topic, not only Robert Wade’s (1990) book: in the style of Liu (2017) and Lane (2017). Also, as a suggestion, it would be interesting to see the index for “real distorted import prices” for East Asian countries, as it would teach us something about Latin America.

The 1980s and 1990s could also have a more extensive literature review. For example, the paper argues that the improvement in terms of trade after the 1990s was associated with “some form of Dutch Disease”. However, there is not sufficient evidence to make this statement. Their measure of de-industrialization, which is a declining share of manufacturing in total GDP, is a limited way to measure de-industrialization, especially when productivity of the other sectors (like agriculture) was increasing. The lower share of manufacturing after the 1980s could also be a form of correction after the excesses of the 1960s and 1970s. Indeed, we still do not have a clear answer about the opportunity cost of those policies. Nevertheless, the Brazilian’s government attempt (and failure) to resuscitate the policies of the military regime in the years after 2008 shows us that the cost-benefit of industrialization at any cost in previous decades needs to be re-evaluated (as they were in Musacchio and Lazzarini 2014). After three decades of declining knowledge barriers between South American countries, perhaps it is time to “demand” the next step in historical comparative studies: micro studies.


  • Bertolá, Luis and José Antonio Ocampo’s The Economic Development of Latin America since Independence. Oxford: Oxford University Press, 2012.
  • Lane, Nathan. “Manufacturing Revolutions. Industrial Policy and Networks in South Korea.” Job Market Paper, Institute for International Economic Studies (IEES), 2017.
  • Liu, Ernest. “Industrial Policies in Production Networks.” Working Paper, Princeton University, 2017.
  • Musacchio, Aldo, and Sergio Lazzarini. Reinventing State Capitalism. Leviathan in Business, Brazil and Beyond. Cambridge, MA: Cambridge University Press, 2014.
  • Wade, Robert. Governing the Market. Economic Theory and the Role of Government in East Asian Industrialization. Princeton, NJ: Princeton University Press, 1990.

from VOX – The return of regional inequality: Europe from 1900 to today

by Joan Rosés (LES) and Nikolaus Wolf (Humboldt University)



via EHS The Long Run

Original post Here

Are businessmen from Mars and businesswomen from Venus?

by Jennifer Aston (Oxford University) and Paulo di Martino (University of Birmingham) The full paper was published on the Economic History Review, accessible here Do women and men trade in different ways? If so, why? And are men more or less successful than women? These are very important questions not just, or not only, for the academic […]

via Are businessmen from Mars and businesswomen from Venus? An analysis of female business success and failure in Victorian and Edwardian England — The Long Run