People have been debating whether tightening financial conditions imply that the Fed should slow monetary tightening. The argument is that banking distress leads to credit contraction, which will reduce demand and inflation. 1/ However, a simple point that I haven't seen is that credit supply contraction can in principle reduce either supply/productive capacity or demand, as @AtifRMian, @profsufi, and I argued in this paper onlinelibrary.wiley.com/doi/abs/10.111… 2/

Excited to share a new paper!

“The Debt-Inflation Channel of the German Hyperinflation.”

This is joint work with an awesome set of co-authors: @MarkusEconomist , @Ogoun, @StephanLuck, and @TomZ_Econ

Link: papers.ssrn.com/sol3/papers.cf…

A short thread… 1/ How does inflation transmit to the real economy? An old idea going back to Fisher and Keynes is that unexpected inflation can affect the allocation and level of real activity by redistributing wealth to net nominal debtors. 2/

Keynes’ “A Tract on Monetary Reform” (1923) contains some insights that are quite interesting and relevant for today’s debate about inflation and the role of corporate “greed” and “profiteering.”

delong.typepad.com/keynes-1923-a-…

/1 Writing 100 years ago, the first chapter nicely outlines the varied effects of inflation on different groups in society (the “investing class”, “business class”, “earner”). /2

Excited that this paper (w/ @gyozo_gy) is forthcoming at the JF. We find that household financial distress from foreign currency debt exposure during a currency crisis in Hungary led to a large increase in support for a debtor-friendly far-right populist party. /1

https://twitter.com/JofFinance/status/1525114272652505088

The setting of the paper is Hungary, where in 2008, 2/3 of household loans (mostly mortgages) were denominated in foreign currency (primarily Swiss franc). /2

Interesting new paper on the 2000s house price boom in the US, taking the perspective of longer-term house price dynamics from the late 1990s to today.

There are some similar patterns in international data, which I think are worth noting. 1/

https://twitter.com/gchodorowreich/status/1424710359932362757

These patterns probably won’t surprise people in countries currently debating how to deal with elevated house prices, precisely because they experienced the 2000s boom and bust. 2/

I greatly enjoyed reading William Quinn and @ProfJohnTurner's “Boom and Bust,” a history of financial bubbles going back to the 1720 South Sea bubble and zooming forward to the Chinese stock market bubble of 2015. It's a must-read for those interested in financial history. 1/ The book is filled with fascinating historical cases, organized around a clear framework for thinking about bubbles. Here are a few perspectives I found particularly interesting: 2/

Very excited that our paper (w/ @AtifRMian and @profsufi) “How Do Credit Supply Expansions Affect the Real Economy: The Productive Capacity and Household Demand Channels” is now forthcoming at the Journal of Finance! 1/

https://twitter.com/JofFinance/status/1212028262504943616

@AtifRMian @profsufi The paper makes a simple point that we hope will be useful to researchers studying past credit booms and to policymakers evaluating risks in future booms.

Let me try to describe the basic idea. 2/

Jeremy Stein's Mundell-Fleming Lecture. Worth watching for thoughts on credit cycles, including the relative roles of macroprudential and monetary policy in taming the cycle imf.org/en/News/Semina… A few points worth thinking more about:

- It's important to remember that garden-variety business cycles have an important element of credit supply shocks as one of the drivers or amplifiers. It’s not just about the severe crises like the Great Recession of Depression.

2/