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Getting it Wrong: How Faulty Monetary Statistics Undermine the Fed, the Financial System, and the Economy

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  • Barnett, William A.

    ()
    (University of Kansas)

Abstract

Blame for the recent financial crisis and subsequent recession has commonly been assigned to everyone from Wall Street firms to individual homeowners. It has been widely argued that the crisis and recession were caused by “greed” and the failure of mainstream economics. In Getting It Wrong, leading economist William Barnett argues instead that there was too little use of the relevant economics, especially from the literature on economic measurement. Barnett contends that as financial instruments became more complex, the simple-sum monetary aggregation formulas used by central banks, including the U.S. Federal Reserve, became obsolete. Instead, a major increase in public availability of best-practice data was needed. Households, firms, and governments, lacking the requisite information, incorrectly assessed systemic risk and significantly increased their leverage and risk-taking activities. Better financial data, Barnett argues, could have signaled the misperceptions and prevented the erroneous systemic-risk assessments. When extensive, best-practice information is not available from the central bank, increased regulation can constrain the adverse consequences of ill-informed decisions. Instead, there was deregulation. The result, Barnett argues, was a worst-case toxic mix: increasing complexity of financial instruments, inadequate and poor-quality data, and declining regulation. Following his accessible narrative of the deep causes of the crisis and the long history of private and public errors, Barnett provides technical appendixes, containing the mathematical analysis supporting his arguments.

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Bibliographic Info

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This book is provided by The MIT Press in its series MIT Press Books with number 0262516888 and published in 2012.

Volume: 1
Edition: 1
ISBN: 0-262-51688-8
Handle: RePEc:mtp:titles:0262516888

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Web page: http://mitpress.mit.edu

Related research

Keywords: recession; data; regulation; monetary aggregation; banks;

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Cited by:
  1. William Barnett & Marcelle Chauvetz & Danilo Leiva-Leonx, . "Real-Time Nowcasting Nominal GDP Under Structural Break," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201313, University of Kansas, Department of Economics.
  2. William Barnett & Jia Liu & Ryan Mattson & Jeff van den Noort, 2012. "The New CFS Divisia Monetary Aggregates: Design, Construction, and Data Sources," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201208, University of Kansas, Department of Economics, revised May 2012.
  3. Makram El-shagi & Logan J Kelly, 2014. "Liquidity in the liquidity crisis: evidence from Divisia monetary aggregates in Germany and the European crisis countries," Economics Bulletin, AccessEcon, vol. 34(1), pages 63-72.
  4. Richard G. Anderson & Barry Jones & Marcelle Chauvet, 2013. "Nonlinear relationship between permanent and transitory components of monetary aggregates and the economy," Working Papers, Federal Reserve Bank of St. Louis 2013-018, Federal Reserve Bank of St. Louis.
  5. Michael T. Belongia & Peter N. Ireland, 2012. "Quantitative Easing: Interest Rates and Money in the Measurement of Monetary Policy," Boston College Working Papers in Economics, Boston College Department of Economics 801, Boston College Department of Economics.
  6. william, barnett, 2013. "Friedman and Divisia Monetary Measures," MPRA Paper 52310, University Library of Munich, Germany.
  7. Michael T. Belongia & Peter N. Ireland, 2012. "A "Working" Solution to the Question of Nominal GDP Targeting," Boston College Working Papers in Economics, Boston College Department of Economics 802, Boston College Department of Economics, revised 04 Jan 2013.
  8. John Keating & Logan Kelly & Andrew Lee Smith & Victor J. Valcarcel, 2014. "A Model of Monetary Policy Shocks for Financial Crises and Normal Conditions," Working Papers in Economics and Finance 1002, UWRF - Center for Economic Research, College of Business and Economics, University of Wisconsin - River Falls.
  9. Michael T. Belongia & Peter N. Ireland, 2010. "The Barnett Critique After Three Decades: A New Keynesian Analysis," Boston College Working Papers in Economics, Boston College Department of Economics 736, Boston College Department of Economics.
  10. Alkhareif, Ryadh & Barnett, William A., 2012. "Divisia monetary aggregates for the GCC countries," MPRA Paper 39539, University Library of Munich, Germany.
  11. John Keating & Andrew Lee Smith, 2013. "Determinacy and Indeterminacy in Monetary Policy Rules with Money," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201310, University of Kansas, Department of Economics.
  12. Michael T. Belongia & Peter N. Ireland, 2014. "Interest Rates and Money in the Measurement of Monetary Policy," NBER Working Papers 20134, National Bureau of Economic Research, Inc.
  13. Apostolos Serletis & Khandokar Istiak & Periklis Gogas, 2013. "Interest Rates, Leverage, and Money," Open Economies Review, Springer, Springer, vol. 24(1), pages 51-78, February.

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