“My essay on causes of the financial mess focused on trying to identify the initial “impulses” that set the boom-bust cycle in motion because (as this symposium shows) economists have a variety of views about the impulses, and because identifying them correctly is our best hope for avoiding policy mistakes going forward. Nonetheless I agree with Brad DeLong that the question of the “propagation mechanisms” is also vitally important. We do face major puzzles in understanding the mechanisms that have turned monetary policy swings of merely large size (combined with regulatory distortions) into a financial mess of freakishly large size.” Read more.
“A Match Can Cause a Forest Fire: A Response to Brad DeLong”
Lawrence H. White