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Contact Me  mailto:rfarmer@econ.ucla.edu

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New Working Papers

Fiscal Policy Can Reduce Unemployment: But There is a Better Alternative © AVAILABLE HERE.   UPDATED 10-22-09 Prepared for the November 2009 meeting of the Carnegie Rochester Conference on Public Policy, “Fiscal Policy in an Era of Unprecedented Budget Deficits.” I explain the current financial crisis as a shift to a high unemployment equilibrium, induced by the self-fulfilling beliefs of market participants about asset prices. I ask two questions. 1) Can fiscal policy help us out of the crisis? 2) Is there an alternative to fiscal policy that is less costly and more effective? The answer to both questions is yes. Computer code for diagrams in the paper is HERE

COMING SOON!

How the Economy Works: Confidence Crashes and Self-fulfilling Prophecies

The Great Recession Ended in May of 2009 A number of economists, including Chairman Bernanke of the US Federal Reserve, have declared that the current recession is very likely over  (Robb, 2009) and two reporters for Forbes (Wesbury and Stein, 2009) have dated the end of the recession to May of 2009. This short piece adds credence to that statement by studying the past behavior of the stock market and the unemployment rate.  VoxEU October 5th 2009 HERE.

Confidence, Crashes and Animal Spirits ©  AVAILABLE HERE. Also available as NBER Working Paper #14846.  This paper  provides the logic that underpins my recent Financial Times pieces. It offers a new paradigm for macroeconomics in which there may be a continuum of steady state unemployment rates indexed by self-fulfilling beliefs about the value of assets.

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The Great Recession and the Coming Jobless Recovery.  Confidence is slowly returning to the stock market and the S&P is back to the level it reached when President Obama took office in January. This is enough to prevent a further collapse in spending; the Obama stimulus package may even move us into positive territory for US gross domestic product growth. But these ‘green shoots of recovery’ are not enough to create the jobs needed to restore full employment in the US....  Financial Times August 6th 2009 HERE.

Debt Deficits and Finite Horizons: The Stochastic Case ©. Joint with Carine Nourry and Alain Venditti.  available HERE. This paper constructs a stochastic version of Blanchard's perpetual youth model. It should be useful to researchers who are interested in studying the effects of fiscal policy in stochastic macroeconomic models without the representative agent assumption.

 Preorder from Amazon HERE

Why Keynes Was Right And Wrong, And Why it Matters. In the FT’s Economists’ Forum, Benn Steil wrote a stimulating piece in which he argued that Keynes was wrong. His argument is that interpretations of Keynesian economics are all based on the assumption that wages and prices are sticky. ... Financial Times May 27th 2009 HERE.

Understanding Markov-Switching Rational Expectations Models  ©  AVAILABLE HERE. Joint with Dan Waggoner and Tao Zha.   This paper provides a set of necessary and sufficient conditions for rational expectations equilibria in models where there is regime switching to be unique.

Macroeconomics: Adjusting the Big Picture: Roger Farmer, featured as one of three experts weighing in on how to better handle, and even avoid, the next global financial crisis: Business Week April 16th 2009 HERE

A Critical Review of:  Animal Spirits: How Human Psychology Drives the Economy and Why it Matters for Global Capitalism, by George A. Akerlof and Robert J. Shiller.  © Available Here. The Economic Record, 85(270) 2009, pp, 357-369.

Bah Humbug: Stagflation is Just Around the Corner  Economic policy is in a muddle. Academic voices are flooding the blogosphere and the intelligent policymaker can be forgiven for being unclear as to which side to listen to. Financial Times April 6th 2009 HERE.

Reactions Economists View April 7th 2009

Japan's Price Keeping Operations Can Succeed  Sir, In your editorial “Political paralysis” (February 25), you disparage the idea that the Japanese government should start “price-keeping operations” by, in your words, “spending 25,000bn yen of public money to prop up the stock market”. Financial Times February 27th 2009 HERE.

Fed 2.0: An Institution for the 21st Century

How to Fix the Banks We don’t need to nationalise the banks. We don’t need to guarantee bad assets. We don’t need government to own voting shares in private banks. We don’t need to create a bad bank full of toxic assets. Financial Times February 9th 2009 HERE.

Comments Moneyweek  FT

How the Crisis Affects the Global Economy

The Government Should Target the Stock Market This column contains a synopsis of the economics that underlies the Financial Times articles listed below. VoxEU February 4th 2009 HERE.

Reactions Brad-Delong US News and World Report March 3 2009

A New Monetary Policy for the 21st Century For the past seventy years, policy makers have relied on fiscal and monetary policy to combat recessions. Monetary policy works by lowering real interest rates and stimulating private expenditure. Financial Times January 12th 2009 HERE.

Comments FT

How to Prevent the Great Depression of 2009  The US recession that began in December 2007 resulted in 403,000 lost jobs in September, 320,000 in October and 533,000 jobs in November. Projections for 2009 are ominous. Financial Times December 30th, 2008 HERE

Reactions Marginal Revolution   Economists View  The Glittering Eye  Worthwhile Canadian Initiative