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"Edwards, Sebastian"
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Runaway Inflation in Chile, 1970-1973
In this essay, I argue that the explosion of inflation during the Salvador Allende administration in Chile (above 1,500% on a six-month annualized measure) was predictable. The government's use of massive and strict price controls generated acute macroeconomic imbalances. I postulate that the combination of runaway inflation, shortages, and black markets generated major hostility among the middle class and that that unhappiness reduced the support for the Unidad Popular government.
Journal Article
American default : the untold story of FDR, the Supreme Court, and the battle over gold
The untold story of how FDR did the unthinkable to save the American economy.
BOOK
On Latin American Populism, and Its Echoes around the World
In this article, I discuss the ways in which populist experiments have evolved historically. Populists are charismatic leaders who use a fiery rhetoric to pitch the interests of \"the people\" against those of banks, large firms, multinational companies, the International Monetary Fund, and immigrants. Populists implement redistributive policies that violate the basic laws of economics, and in particular budget constraints. Most populist experiments go through five distinct phases that span from euphoria to collapse. Historically, the vast majority of populist episodes end up badly; incomes of the poor and middle class tend to be lower than when the experiment was launched. I argue that many of the characteristics of traditional Latin American populism are present in more recent manifestations from around the globe.
Journal Article
The Federal Reserve, the Emerging Markets, and Capital Controls: A High-Frequency Empirical Investigation
In this paper, I use weekly data from seven emerging nations—four in Latin America and three in Asia—to investigate the extent to which changes in Fed policy interest rates have been transmitted into domestic short-term interest rates during the 2000s. The results suggest that there is indeed an interest rates \"pass-through\" from the Fed to emerging markets. However, the extent of transmission of interest rate shocks is different—in terms of impact, steady state effect, and dynamics—in Latin America and Asia. The results also indicate that capital controls are not an effective tool for isolating emerging countries from global interest rate disturbances. Changes in the slope of the U.S. yield curve, including changes generated by a \"twist\" policy, affect domestic interest rates in emerging countries. I also provide a detailed case study for Chile.
Journal Article
ONE HUNDRED YEARS OF EXCHANGE RATE ECONOMICS AT THE UNIVERSITY OF CHICAGO: 1892–1992
In this paper I analyze the work on exchange rates and external imbalances by University of Chicago faculty members during the university’s first 100 years, 1892 to 1992. Many people associate Chicago’s views with Milton Friedman’s advocacy for flexible exchange rates. But, of course, there was much more than that, including the work of J. Laurence Laughlin on bimetallism, Jacob Viner on the balance of payments, Lloyd Metzler on transfers, Harry Johnson on trade and currencies, Lloyd Mints on exchange rate regimes, Robert Mundell on optimal currency areas, and Arnold Harberger on shadow exchange rates, among others. The analysis shows that, although different scholars emphasized different issues, there was a common thread in this research, anchored on the role of relative prices’ changes during the adjustment process.
Journal Article
Inflation and the Corruption of Currency in Latin America: Chile, 1970–1973
In this article I analyze Salvador Allende’s economic program and policies. I argue that the explosion of inflation during his administration (above 1,500% on a six-month annualized measure) was predictable, and I show that the government’s response to it was political. I postulate that runaway inflation generated major disaffection among the middle class and that that unhappiness paved the way to Pinochet’s coup d’état in 1973.
Journal Article
Capital controls and capital flows in emerging economies
Some scholars argue that the free movement of capital across borders enhances welfare; others claim it represents a clear peril, especially for emerging nations. In Capital Controls and Capital Flows in Emerging Economies, an esteemed group of contributors examines both the advantages and the pitfalls of restricting capital mobility in these emerging nations. In the aftermath of the East Asian currency crises of 1997, the authors consider mechanisms that eight countries have used to control capital inflows and evaluate their effectiveness in altering the maturity of the resulting external debt and reducing macroeconomic vulnerability. This volume is essential reading for all those interested in emerging nations and the costs and benefits of restricting international capital flows.
eBook
Capital Flows and the Emerging Economies
The 1990s witnessed several acute currency crises among developing nations that invariably spread to other nearby at-risk countries. These episodes—in Mexico, Thailand, South Korea, Russia, and Brazil—were all exacerbated by speculative foreign investments and high-volume movements of capital in and out of those countries. Insufficient domestic controls and a sluggish international response further undermined these economies, as well as the credibility of external oversight agencies like the International Monetary Fund. This timely volume examines the correlation between volatile capital mobility, currency instability, and the threat of regional contagion, focusing particular attention on the emergent economies of Latin America, Southeast Asia, and Eastern Europe.
Together these studies offer a new understanding of the empirical relationship between capital flows, international trade, and economic performance, and also afford key insights into realms of major policy concern.
eBook
Modern Monetary Theory: Cautionary Tales from Latin America
During the last few years an apparently new and revolutionary idea has emerged in economic policy circles in the United States: \"Modern Monetary Theory\" (MMT). The central tenet of this view is that it is possible to use expansive monetary policy-money creation by the central bank (i.e., the Federal Reserve)-to finance large fiscal deficits, and create a \"jobs guarantee\" program that will ensure full employment and good jobs for everyone. This view is related to Abba Lerner's (1943) \"functional finance\" idea, and has become very popular in progressive spheres. According to MMT supporters, this policy would not result in crowding out of private investment, nor would it generate a public debt crisis or inflation outbursts. MMT runs against received wisdom among economists, and has been resisted by Keynesians and monetarists alike. Respected and influential academics such as Paul Krugman, Kenneth Rogoff, and Larry Summers, among others, have stated that MMT makes little sense. Krugman (2019b) has written that the principles behind MMT are \"indefensible,\" and that the arguments made by its supporters are \"sophistry.\" According to Rogoff (2019), MMT is \"nonsense\" based \"on some fundamental misconceptions.\" And Summers (2019) has contended that embracing \"modern monetary theory is a recipe for disaster.\" MMT supporters have responded by saying that their critics don't truly understand how modern monetary economies work. According to them, in countries with a currency of their own, governments don't face a hard budget constraint; the government can always print additional money to pay for higher expenditures. According to Stephanie Kelton (2019), \"The government budget is not like a household budget because the government prints its own money.\" Along similar lines, Forstater and Mosler (2005) have argued that in a \"fiat money\" system the natural rate of interest is zero; the role of the monetary authority is to push the actual rate to zero, through the purchase of government securities. If long-term equilibrium interest rates are equal to zero, then r < g in growing economies-that is, the rate of interest is lower than the rate of growth of GDP-and there would be no explosion of government debt.
Journal Article