Working Papers

UCLA Economics

Published Journal Articles

Books I Have Written or Edited

Links to Journals I Edit

Contact Me  mailto:rfarmer@econ.ucla.edu

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New Working Papers

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. But wages and prices are not sticky. Ergo - Keynes was wrong. Mr. Steil and I are in complete agreement that the Keynesians, interpreted in this way are, to use a technical term, out to lunch. But that does not imply that Keynes was wrong. At least not entirely wrong. Far from it.... Financial Times May 27th 2009.

Fiscal Policy Can Reduce Unemployment: But There is a Less Costly and More Effective Alternative © available here.   Also available as NBER Working Paper #15021. 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.

Forthcoming: 2009 with Oxford University Press

"Expectations Employment and Prices"

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

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

Forthcoming: 2009 with Oxford University Press

"Confidence, Crashes and Self-Fulfilling Prophecies"

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.

Reactions Economists View April 7th 2009

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.

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.

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.

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.

Comments Moneyweek  FT

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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.

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

Fed 2.0: An Institution for the 21st Century

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.

Comments FT

How the Crisis Affects the Global Economy

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

Reactions Marginal Revolution   Economists View  The Glittering Eye  Worthwhile Canadian Initiative