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Why We Should Favor (Slightly) Less Efficient Financial Markets

Jamus Lim's picture

Lost in many of the post-crisis financial reform proposals to rein in destructive financial innovation---such as calls to ban naked CDS, establish centralized clearinghouses for derivatives, and eliminate high-frequency trading---is the broader issue of whether these innovations could actually enhance welfa

The good, the bad, and the ugly imbalances

Hans Timmer's picture

In a recent IMF Staff position note Olivier Blanchard and Gian Maria Milesi-Ferretti provide a useful classification of current account imbalances. They argue that deficits and surpluses on current accounts are "good" if they reflect optimal allocation of capital across time and space. That is the case, for example, when savings ratios differ across countries because of different ageing profiles or when investment ratios differ because of different productivity trends.

Do Taylor Rule Deviations Contribute to Asset Bubbles?

Jamus Lim's picture

The notion that systematic Taylor rule deviations has a role to play in the real estate bubble in the United States is an issue that has been rigorously debated---see John Taylor (PDF) and Marco del Negro and Christopher Otrok for opposing views---but broader evidence at the cross-country level is relatively scarce.

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