{
  "title": "The Cat in the Tree and Further Observations: Rethinking Macroeconomic Policy",
  "publication": "IMF Blog, May 1, 2013",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2013/05/01/the-cat-in-the-tree-and-further-observations-rethinking-macroeconomic-policy",
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  "summary": "Author frames the crisis as a cat in a huge tree: visible, alarming, and subject to many different perspectives.",
  "sections": [
    {
      "heading": "Metaphor and framing",
      "content": "- Author frames the crisis as a cat in a huge tree: visible, alarming, and subject to many different perspectives.\n- Each analyst offers a valid, perspective-driven image of the cat; the conference’s value is in the variety of these perspectives and occasional convergence.\n- Focus of the essay: post-crisis United States, with analysis that also pertains internationally."
    },
    {
      "heading": "Historical evidence on financial recessions and credit",
      "content": "- Jorda, Schularick, and Taylor study: 14 advanced countries from 1870 to 2008; recessions divided into financial recessions and normal recessions.\n- Key empirical finding: financial recessions are deeper and slower in recovery than normal recessions, and recovery is slower the greater is the credit to GDP ratio.\n- Application to the current crisis:\n  - Using bank loans to the private sector as the measure of credit, the United States’ recovery is about 1 percent of GDP better than mean recovery for financial recessions.\n  - When credit also includes shadow banking system credit, the United States is about 4 percent better than the median recovery in financial recessions.\n- Caveat: With the onset of financial derivatives, measuring “credit” becomes ambiguous; inclusion or exclusion of derivative-related exposures affects comparisons to historical benchmarks."
    },
    {
      "heading": "Role of derivatives and the shadow banking system",
      "content": "- Two possible roles of derivatives:\n  - If used to hedge risk, derivatives could be expected to soften the crash.\n  - If they escalate gambling, derivatives could be expected to exacerbate the crash.\n- Conventional interpretation of the 2007-2008 crash: derivatives enhanced gambling by enabling a daisy chain of escalating valuation of mortgages, with shoddy originations bundled into derivative packages rated A and higher.\n- Consequence described: mortgage originators had reduced incentives to require downpayments or borrower credibility; investment houses and ratings agencies relied on reputational fiduciary roles in creating and rating derivatives.\n- Implication: measures of credit based solely on loans outstanding, even when including shadow banks, likely yield a conservative benchmark for where recovery should have been."
    },
    {
      "heading": "Assessment of macroeconomic policy response",
      "content": "- Context in Fall 2008: without government intervention, the Great Depression was the benchmark for potential outcomes.\n- Author’s assessment: macro policy after the crisis has been “truly excellent” and close to what was required to avert a repeat Depression.\n- Specific policy actions cited (examples of measures implemented):\n  - The Economic Stimulus Act of 2008\n  - The bailout of AIG\n  - The rescue of WaMu, Wachovia and CountryWide by adoption\n  - TARP\n  - The stress tests run by Treasury and the Fed\n  - Declines in interest rates to close to zero\n  - The American Recovery and Reinvestment Act of 2009\n  - Bailout of the auto industry\n  - International co-operation at the Group of Twenty Meeting in Pittsburgh with IMF participation\n- Intuitive argument for effectiveness: targeted interventions can prevent systemic collapse — e.g., if Lehman Brothers had been $1 in the red and needed $1 to stay solvent, a $2 intervention at the right moment could have averted a Great Depression-style outcome.\n- Magnitude claim: expenditures for bailouts stopped a financial meltdown; relative to the tens of trillions of GDP that would have been lost with a repeat of the Great Depression, the savings from TARP are of the order of magnitude of 1,000 to one — a figurative “finger in the dyke.”\n- Fiscal stimulus multipliers:\n  - Current estimates of government expenditure multipliers are something like 2.\n  - Liquidity-trap estimates of a balanced budget multiplier are approximately 1, in theory and in estimation.\n  - The tax multiplier is robustly measured as approximately 1.\n  - Therefore, government expenditure multipliers will be the sum of the two, supporting the conclusion that stimulus bills have almost surely had significant payoff."
    },
    {
      "heading": "Criticism, communication failure, and lessons for the future",
      "content": "- Main criticism: policymakers and economists failed to lead the public to understand that success should be measured against a benchmark accounting for financial vulnerability set in the preceding boom, not solely by the level of current unemployment.\n- Communication challenge: the public has limited attention for macroeconomic history and complex benchmarks.\n- Summary judgment:\n  - Economists did poorly in predicting the crisis.\n  - Post-crisis policies, however, have been close to what a sensible economist-doctor would have ordered, implemented by Bush and Obama administrations and supported by Congress.\n- Lesson: good economics and common sense have worked well in crisis response; the record of trial and success should inform policy going forward.\n\nGeorge A. Akerlof, May 1, 2013\n\n---\n\n Content in this bundle\n\n- 从树上的猫说起：反思宏观经济政策; iMFdirect博客 2013年5月1日, 特约撰稿人：George A. Akerlof 加州大学伯克利分校\n  - 从树上的猫说起：反思宏观经济政策; iMFdirect博客 2013年5月1日, 特约撰稿人：George A. Akerlof 加州大学伯克利分校 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 从树上的猫说起：反思宏观经济政策; iMFdirect博客 2013年5月1日, 特约撰稿人：George A. Akerlof 加州大学伯克利分校 (PDF){rel=\"external\" type=\"application/pdf\"}\n- 世界金融危機のさらなる考察: マクロ経済政策の再考; iMF direct ブログ 掲載2013年5月1日, 寄稿：ジョージ・A・アカーロフ, カリフォルニア大学バークレイ校\n  - 世界金融危機のさらなる考察: マクロ経済政策の再考; iMF direct ブログ 掲載2013年5月1日, 寄稿：ジョージ・A・アカーロフ, カリフォルニア大学バークレイ校 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 世界金融危機のさらなる考察: マクロ経済政策の再考; iMF direct ブログ 掲載2013年5月1日, 寄稿：ジョージ・A・アカーロフ, カリフォルニア大学バークレイ校 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Кошка на дереве и другие наблюдения: переосмысление макроэкономической политики\n  - Кошка на дереве и другие наблюдения: переосмысление макроэкономической политики (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Кошка на дереве и другие наблюдения: переосмысление макроэкономической политики (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- عربي\n- conference\n- https://www.imf.org/wp-content/uploads/2013/04/dbcstock032108522.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2013/05/01/the-cat-in-the-tree-and-further-observations-rethinking-macroeconomic-policy"
    }
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    "Authors: George A Akerlof",
    "Published: May 1, 2013",
    "Author frames the crisis as a cat in a huge tree: visible, alarming, and subject to many different perspectives.",
    "Each analyst offers a valid, perspective-driven image of the cat; the conference’s value is in the variety of these perspectives and occasional convergence.",
    "Focus of the essay: post-crisis United States, with analysis that also pertains internationally.",
    "Jorda, Schularick, and Taylor study: 14 advanced countries from 1870 to 2008; recessions divided into financial recessions and normal recessions.",
    "Key empirical finding: financial recessions are deeper and slower in recovery than normal recessions, and recovery is slower the greater is the credit to GDP ratio.",
    "Application to the current crisis:",
    "Caveat: With the onset of financial derivatives, measuring “credit” becomes ambiguous; inclusion or exclusion of derivative-related exposures affects comparisons to historical benchmarks.",
    "Two possible roles of derivatives:",
    "Conventional interpretation of the 2007-2008 crash: derivatives enhanced gambling by enabling a daisy chain of escalating valuation of mortgages, with shoddy originations bundled into derivative packages rated A and higher.",
    "Consequence described: mortgage originators had reduced incentives to require downpayments or borrower credibility; investment houses and ratings agencies relied on reputational fiduciary roles in creating and rating derivatives.",
    "Implication: measures of credit based solely on loans outstanding, even when including shadow banks, likely yield a conservative benchmark for where recovery should have been.",
    "Context in Fall 2008: without government intervention, the Great Depression was the benchmark for potential outcomes.",
    "Author’s assessment: macro policy after the crisis has been “truly excellent” and close to what was required to avert a repeat Depression.",
    "Specific policy actions cited (examples of measures implemented):",
    "Intuitive argument for effectiveness: targeted interventions can prevent systemic collapse — e.g., if Lehman Brothers had been $1 in the red and needed $1 to stay solvent, a $2 intervention at the right moment could have averted a Great Depression-style outcome.",
    "Magnitude claim: expenditures for bailouts stopped a financial meltdown; relative to the tens of trillions of GDP that would have been lost with a repeat of the Great Depression, the savings from TARP are of the order of magnitude of 1,000 to one — a figurative “finger in the dyke.”",
    "Fiscal stimulus multipliers:",
    "Main criticism: policymakers and economists failed to lead the public to understand that success should be measured against a benchmark accounting for financial vulnerability set in the preceding boom, not solely by the level of current unemployment.",
    "Communication challenge: the public has limited attention for macroeconomic history and complex benchmarks.",
    "Summary judgment:",
    "Lesson: good economics and common sense have worked well in crisis response; the record of trial and success should inform policy going forward.",
    "**从树上的猫说起：反思宏观经济政策; iMFdirect博客 2013年5月1日, 特约撰稿人：George A. Akerlof 加州大学伯克利分校**",
    "**世界金融危機のさらなる考察: マクロ経済政策の再考; iMF direct ブログ 掲載2013年5月1日, 寄稿：ジョージ・A・アカーロフ, カリフォルニア大学バークレイ校**",
    "**Кошка на дереве и другие наблюдения: переосмысление макроэкономической политики**",
    "[عربي](http://blog-montada.imf.org/?p=2304)",
    "[conference](http://www.imf.org/external/np/seminars/eng/2013/macro2/index.htm)",
    "[https://www.imf.org/wp-content/uploads/2013/04/dbcstock032108_522.jpg](https://www.imf.org/wp-content/uploads/2013/04/dbcstock032108_522.jpg)"
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