In Reinhart and Rogoff's economic history This Time is Different, the authors provide a panoramic view of crises from the Middle Ages to the modern era. Published just as the current global financial storm arrived, the book quickly showed how history could provide not just useful perspective but also, as we can now see, very prescient guidance in the aftermath. In the longer run, the book serves to inspire ongoing work in long-run macro-financial history. (JEL F30, G01, G20, N20)

The PPP puzzle is based on empirical evidence that international price differences for individual goods (LOOP) or baskets of goods (PPP) appear highly persistent or even nonstationary. The present consensus is these price differences have a half-life that is of the order of five years at best, and infinity at worst. This seems unreasonable in a world where transportation and transaction costs appear so low as to encourage arbitrage and the convergence of price gaps over much shorter horizons, typically days or weeks. However, current empirics rely on a particular choice of methodology, involving (i) relatively low-frequency monthly, quarterly, or annual data, and (ii) a linear model specification. In fact, these methodological choices are not innocent, and they can be shown to bias analysis towards findings of slow convergence and a random walk. Intuitively, if we suspect that the actual adjustment horizon is of the order of days, then monthly and annual data cannot be expected to reveal it. If we suspect arbitrage costs are high enough to produce a substantial “band of inaction,” then a linear model will fail to support convergence if the process spends considerable time random-walking in that band. Thus, when testing for PPP or LOOP, model specification and data sampling should not proceed without consideration of the actual institutional context and logistical framework of markets.

The late nineteenth century saw international mass migrations of capital and labor from the Old World to the New. Factors chased each other and the abundant resources at the frontier. Demographic structure also contributed to the massive capital flows from Britain to the New World. The dependency hypothesis is confirmed by estimation of savings functions in three New World economies (Argentina, Australia, and Canada) in which high dependency rates may have significantly depressed domestic savings rates and pulled in foreign investment: in effect an intergenerational transfer from old savers in the Old World to young savers in the New.

This paper investigates purchasing-power parity (PPP) since the late nineteenth century. I collected data for a group of twenty countries over 100 years, a larger historical panel of annual data than has ever been studied. The evidence for long-run PPP is favorable using recent multivariate and univariate tests of higher power. Residual variance analysis shows that episodes of floating exchange rates have generally been associated with larger deviations from PPP, as expected; this result is not attributable to significantly greater persistence (longer half-lives) of deviations in such regimes, but is due to the larger shocks to the real exchange rate process in such episodes. In the course of the twentieth century, there was relatively little change in the capacity of international market integration to smooth out real exchange rate shocks. Instead, changes in the size of shocks depended on the political economy of monetary and exchange rate regime choice under the constraints imposed by the trilemma.

We offer a new explanation as to why international trade is so volatile in response to economic shocks. Our approach combines the uncertainty shock idea of Bloom (2009) with a model of international trade, extending the idea to the open economy. Firms import intermediate inputs from home or foreign suppliers, but with higher costs in the latter case. Due to fixed costs of ordering firms hold an inventory of intermediates. We show that in response to an uncertainty shock firms optimally adjust their inventory policy by cutting their orders of foreign intermediates disproportionately strongly. In the aggregate, this response leads to a bigger contraction in international trade flows than in domestic economic activity. We confront the model with newly-compiled monthly aggregate U.S. import data and industrial production data going back to 1962, and also with disaggregated data back to 1989. Our results suggest a tight link between uncertainty and the cyclical behavior of international trade.

According to the Washington Consensus, developing countries' growth would benefit from reductions in barriers to trade. However, the empirical basis for judging trade reforms is weak. Econometrics are mostly ad hoc, results are typically not judged against models, policies are poorly measured, and most studies are based on pre-1990 experience. We address these concerns by employing a model with capital and intermediate goods, compiling new disaggregated tariff measures, and employing treatment and control regression analysis with differences-in-differences. We find that a specific treatment, liberalizing tariffs on imported capital and intermediate goods, led to faster growth, consistent with the model.

The financial crisis has refocused attention on money and credit fluctuations, financial crises, and policy responses. We study the behavior of money, credit, and macroeconomic indicators over the long run based on a new historical dataset for 14 countries over the years 1870–2008. Total credit has increased strongly relative to output and money in the second half of the twentieth century. Monetary policy responses to financial crises have also been more aggressive, but the output costs of crises have remained large. Credit growth is a powerful predictor of financial crises, suggesting that policymakers ignore credit at their peril. JEL: E32, E44, E52, G01, N10, N20

In contemporary data, the measured factor content of trade is far smaller than its predicted magnitude in the pure Heckscher-Ohlin-Vanek framework, the so-called 'missing trade' mystery. Authors wonder if this problem has been there from the beginning: that is, authors ask if the Heckscher-Ohlin theory was so much at odds with reality at its time of conception. Authors apply contemporary tests to historical data, focusing on the major trading zone that inspired the factor abundance theory, the Old and New Worlds of the pre-1914 'Greater Atlantic' economy. This places autor's analysis in a very different context than contemporary studies: an era with lower trade barriers, higher transport costs, a more skewed global distribution of the relevant factors (especially land), and comparably large productivity divergence. These conditions might seem more favorable to the theory, but the results are still very poor.

A central question in applied research is to estimate the effect of an exogenous intervention or shock on an outcome. The intervention can affect the outcome and controls on impact and over time. Moreover, there can be subsequent feedback between outcomes, controls, and the intervention. Many of these interactions can be untangled using local projections. This method’s simplicity makes it a convenient and versatile tool in the empiricist’s kit, one that is generalizable to complex settings. This article reviews the state of the art for the practitioner and discusses best practices and possible extensions of local projections methods, along with their limitations. (JEL C32, C33, C36, E23, E24)

The late nineteenth century saw international mass migrations of capital and labor from the Old World to the New. Factors chased each other and the abundant resources at the frontier. Demographic structure also contributed to the massive capital flows from Britain to the New World. The dependency hypothesis is confirmed by estimation of savings functions in three New World economies (Argentina, Australia, and Canada) in which high dependency rates may have significantly depressed domestic savings rates and pulled in foreign investment: in effect an intergenerational transfer from old savers in the Old World to young savers in the New.