I should be more careful what I work on...

you see, first I worked on (historical) bubbles, and then NASDAQ blew up... then I did research on the sovereign debt defaults, and Greece imploded. In the fall, for a conference at the Bank of Chile, I did a paper on social and political unrest - assassinations, riots, anti-government demonstrations, violent overthrows of the government... and look what we get in the Middle East. The pejorative term for scholars changing research focus as events unfold is "intellectual ambulance chasers"... but what is this? A reverse Midas touch? At any rate, for a sample of South American countries, I looked at what drove levels of unrest. In particular, I show that budget cuts have a strong effect on the likelihood of instability - over and above the effects of an economic downturn. Here is a link and the abstract:

Efforts at fiscal consolidation are often limited because of concerns over potential social unrest. From German austerity measures during the 1930s to the violent demonstrations in Greece in 2010, hard times have tended to go hand in hand with antigovernment violence. In this paper, I assemble cross-country evidence from eleven South American countries for the period 1937 to 1995 about the extent to which societies become unstable after budget cuts. The results show a clear positive correlation between austerity and instability. I examine the extent to which this relationship simply captures the fact that fiscal retrenchment and economic slumps are correlated, and conclude that this is not what is driving the effect. Finally, I test for interactions with various economic and political variables. While autocracies and democracies show a broadly similar response to budget cuts, countries with a history of stable institutions are less likely to see unrest as a result of austerity measures.

The paper will be out later in the year in a volume edited by Jordi Gali and Luis Felipe Céspedes. Right now, with a doctoral student from UPF, Jacopo Ponticelli, I am working on a related paper to see how much of this holds over the long run in a wider set of countries.

How many big booms in US real estate?

You'd think we would have a lot of data on how the price of housing has moved over time -- after all, it's the single biggest investment most people make in their lives. Oh, and housing is at the heart of that small meltdown in world financial markets that you might have heard about. Actually, you would be quite wrong. Eugene White from Rutgers, who is spending two weeks visiting us at CREi, has a new paper arguing that existing price indices for the 1920s and 1930s are off by a large factor. Case-Shiller, for example, relies on a survey of home owners to figure out what price movements were before 1932. Now, I haven't looked at the fine print, but it's pretty clear that one wouldn't want to write this history of prices of pretty much anything based on what people remember... Eugene finds that evidence from construction volume suggests a much bigger boom (and bust) in US real estate in the 1920s than previously thought. Standard histories - like Kindleberger's book on manias - mention speculation in Florida, but do not have much to say about nationwide price movements. This would imply that the pre-2007 mantra ("house prices have never gone down") is wrong.

I am prepared to believe that we got the house price series wrong (and actually, Tom Nicholas of Harvard B-School has a new series for Manhattan that suggests we can do much better than the data currently used). Crucially, Eugene asks why the big bust in housing at the end of the 20s didn't have the same effect on the financial system as it did today. Financing was more conservative, with 20% down regarded as quite risky already. Bank regulation was much tighter, with strong limits on how many mortgages could be kept on the books in relation to assets. Financing housing, it seems, need not create a powderkeg...