J. Bradford DeLong and Barry Eichengreen, "Between Meltdown and Moral Hazard: Clinton Administration International Monetary and Financial Policy"

Abstract

International monetary and financial policies were at the center of the activities of the Clinton administration for two reasons: first, its own political failures destroyed the administation's ability to make large moves in domestic policy; second, ongoing globalization raised the stakes in international economic policy. From one perspective, the administration’s monetary and financial policies as extraordinarily successful. The U.S. experienced one of the longest, strongest expansions in history, and largely as a result of the U.S.- and IMF-led response, the financial crises of the period did not produce more than transitory interruptions of economic growth in any advanced economy and in any emerging market except Indonesia.

A surprising number of virulent financial crises struck the world economy in the 1990s. Because these crises followed a new pattern, they surprised policy makers in Washington as in other parts of the world. The response therefore had to be assembled on the run. It can and has been criticized, but the criticisms are less important than the fact that the IMF and the U.S. Treasury did make substantial loans to crisis-affected countries, that these loans greatly eased the process of adjustment and recovery.

Yet with 20-20 hindsight we can see that the causes of these crises were not in fact that new. The dangers of fickle animal spirits causing destabilizing capital flows, the vulnerability of investment to crony capitalism, how poor banking sector regulation can generate an international financial crisis, how the existence of resources to provide support and rescue funds in a crisis could lead the private sector to hold imprudent portfolios that increased the risk to the system--these were issues that John Maynard Keynes and Harry Dexter White had wrestled with in the negotiations that culminated in the Bretton Woods Agreement of 1944, that Austria's Credit-Anstalt crisis in 1931 had exhibited in classic form, that had been the subject of a classic study by Ragnar Nurkse in the 1940s.

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