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The Holy Grail of Macroeconomics
Book

The Holy Grail of Macroeconomics

Lessons from Japan's Great Recession

Wiley, 2009 подробнее...


Editorial Rating

8

Qualities

  • Analytical
  • For Experts

Recommendation

Economist Richard Koo’s concept of a “balance sheet recession” could change the way economists think and governments behave. Koo describes how, in the aftermath of massive asset devaluations, private corporations turn from profit maximization to debt repayment to clean up their balance sheets. Thus demand for funds evaporates, growth slumps and traditional efforts to bolster the economy fail. With simple and graceful logic, Koo illustrates why state spending is crucial at those times. Leaders in the financial services industry and in government will particularly appreciate this groundbreaking work.

Take-Aways

  • A “balance sheet recession” is the result of a plunge in asset prices that forces the corporate sector to turn from profit maximization to debt minimization.
  • The concept of a balance sheet recession has been missing from macroeconomic theory.
  • Governments must borrow and spend trapped liquidity to ward off deflation.

About the Author

Richard C. Koo is chief economist at the Nomura Research Institute.


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