100 results on '"Nicolas Cachanosky"'
Search Results
52. Does Bitcoin Have the Right Monetary Rule?
- Author
-
Nicolas Cachanosky
- Subjects
Cryptocurrency ,Order (exchange) ,Currency ,Economics ,Economic analysis ,Monetary economics - Abstract
The growing literature on Bitcoin can be divided into two groups. One performs an economic analysis of Bitcoin focusing on its monetary characteristics. The other one takes a financial look at the price of Bitcoin. Interestingly, both of these groups have not given much more than passing comments to the problem of whether or not Bitcoin has the right monetary rule in order to become a well‐established currency. This paper argues that Bitcoin in particular, and cryptocurrencies in general, do not have a good monetary rule and that this shortcoming seriously limits its prospect of becoming widely used money.
- Published
- 2018
53. Hayek's Average Period of Production: One Step Forward and a Missed Opportunity
- Author
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Nicolas Cachanosky and Peter Lewin
- Subjects
Duration (philosophy) ,Capital structure ,Work (electrical) ,Roundaboutness ,Field (Bourdieu) ,Business cycle ,Economics ,Production (economics) ,Neoclassical economics ,Period (music) - Abstract
One of Hayek’s most important contributions is his work on capital theory and business cycles as presented in Prices and Production. Hayek made significant contributions in this field. Significant contribution, however, usually are not free of issues. In this chapter, we discuss the distinctive characteristics of Hayek’s work on capital theory and how the questions his treatment raised can be answered with modern financial calculations. We also discuss Hayek’s work on capital theory after Prices and Production.
- Published
- 2018
54. Unintended Consequences of ECB Policies in Europe
- Author
-
Nicolas Cachanosky and Andreas Hoffmann
- Subjects
050208 finance ,Unintended consequences ,05 social sciences ,Monetary policy ,Convergence (economics) ,Financial system ,Crisis management ,Periphery countries ,Bust ,0502 economics and business ,Economics ,media_common.cataloged_instance ,050207 economics ,European union ,European debt crisis ,media_common - Abstract
We revisit the unintended consequences of the European Central Bank’s (ECB) policies with a focus on the periphery countries of the European Union (EU) since the 2000s from a modern Austrian perspective. We argue that convergence expectations and the ECB’s expansionary monetary policy were conducive to credit booms that turned bust in 2007/8. The subsequent European debt crisis revealed that the money-induced credit boom also incentivized governments to increase borrowing at relatively low rates. Second, we shed some light on adverse effects of ECB crisis management through an Austrian lens. We suggest that ECB policies were not successful in stimulating bank lending and investment. The main beneficiaries of holding rates at low levels are governments, who use the financial leeway to delay painful reforms. Consequently, ECB policy has (unintentionally) slowed down the recovery in the crisis economies and worsened Europe’s growth prospects since 2009.
- Published
- 2018
55. Open Roads in Macroeconomics
- Author
-
Nicolas Cachanosky
- Subjects
Macroeconomics ,Policy making ,Macroeconomic modelling ,Dynamic stochastic general equilibrium ,Economics - Abstract
An ongoing debate has been going on since the 2008 crisis on the stance of macroeconomic modelling and what changes, if any, should the discipline take. Besides model improvements, the use of DSGE modeling in policy making continued unaltered. This situation has been defended and criticized by different scholars. This paper reviews the stance of the DSGE debate and discusses open roads in macroeconomic theory.
- Published
- 2018
56. Latin American Populism in the 21st Century
- Author
-
Alexandre Padilla and Nicolas Cachanosky
- Subjects
Populism ,Politics ,Latin Americans ,Political science ,Institutional assessment ,Economic history ,Twenty-First Century - Abstract
This paper offers an economic and institutional assessment of 21st-century Latin American populism, particularly in Argentina, Bolivia, Brazil, Ecuador, and Venezuela. We find that populism fails to offer the significant economic and social improvements that leaders promise and voters hope for. Instead, it produces a marked deterioration of economic and political institutions.
- Published
- 2018
57. A Panel Data Analysis of Latin American Populism
- Author
-
Alexandre Padilla and Nicolas Cachanosky
- Subjects
Populism ,Latin Americans ,Political science ,Economic cost ,Economic history ,Sample (statistics) ,Human development (humanity) ,Panel data - Abstract
This paper studies the impact of 21st century populism in Latin America on income and human development. We find a significant economic cost of populism that is consistent with other studies using a different methodology than ours. Our sample consists of five Latin American countries representative of populist governments: Argentina (2003 – 2015), Bolivia (since 2006), Ecuador (since 2007), Nicaragua (since 2007), and Venezuela (since 1999).
- Published
- 2018
58. The Upper Turning Point in the Austrian Business Cycle Theory
- Author
-
Robert Thorpe, Anthony J. Evans, and Nicolas Cachanosky
- Subjects
Constant rate ,Fiat money ,Capital (economics) ,Keynesian economics ,Path (graph theory) ,Business cycle ,Economics ,Turning point ,Austrian business cycle theory - Abstract
This paper studies a scenario - one of the six problems with Austrian Business Cycle theory raised by Hummel (1979) - that the ABCT literature has paid little attention. Will a constant rate of credit expansion necessarily lead to a boom-bust cycle? We conclude that this scenario has two potential outcomes, (1) a change in money demand brings the economy back towards equilibrium or (2) the economy will shift to sub-optimal but still sustainable path. We identify capital heterogeneity effects and the Ricardo effect as distinctly Austrian explanations for an upper turning point, even in a fiat money regime.
- Published
- 2018
59. Monetary Equilibrium and Nominal Income Targeting
- Author
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Nicolás Cachanosky and Nicolás Cachanosky
- Subjects
- Income--Econometric models, Monetary policy, Banks and banking
- Abstract
This book examines the case of nominal income targeting as a monetary policy rule. In recent years the most well-known nominal income targeting rule has been NGDP (level) Targeting, associated with a group of economists referred to as market monetarists (Scott Sumner, David Beckworth, and Lars Christensen among others). Nominal income targeting, though not new in monetary theory, was relegated in economic theory following the Keynesian revolution, up until the financial crisis of 2008, when it began to receive renewed attention. This book fills a gap in the literature available to researchers, academics, and policy makers on the benefits of nominal income targeting against alternative monetary rules. It starts with the theoretical foundations of monetary equilibrium. With this foundation laid, it then deals with nominal income targeting as a monetary policy rule. What are the differences between NGDP Targeting and Hayek's rule? How do these rules stand up against other monetary rules like inflation targeting, the Taylor rule, or Friedman's k-percent?Nominal income targeting is a rule which is better equipped to avoid monetary disequilibrium when there is no inflation. Therefore, a book that explores the theoretical foundation of nominal income targeting, comparing it with other monetary rules, using the 2008 crisis to assess it and laying out monetary policy reforms towards a nominal income targeting rule will be timely and of interest to both academics and policy makers.
- Published
- 2018
60. U.S. monetary policy’s impact on Latin America’s structure of production (1960-2010)
- Author
-
Nicolas Cachanosky
- Subjects
Latin Americans ,Monetary policy ,jel:E32 ,jel:E52 ,Monetary economics ,Investment (macroeconomics) ,Boom ,jel:F44 ,monetary policy, Latin America, international business cycles, structure of production ,Bust ,Federal funds ,Economics ,Production (economics) ,Distortion (economics) ,General Economics, Econometrics and Finance - Abstract
This paper examines the effects of U.S. monetary policy on Latin America’s production structure before two economic crises, specifically the effects of monetary policy on the real economy at the industrial level. Changes in the federal funds rate produce uneven effects on output trends across sectors and industries that are more capital-intensive and involved in relatively long-term projects are more sensitive to changes in the federal funds rate. Periods of loose monetary policy result in resource misallocation that is costly to correct during a bust if investment is irreversible, with a particular pattern of economic distortion during an unsustainable boom.
- Published
- 2015
61. IMPLICATIONS OF MACHLUP’S INTERPRETATION OF MISES’S EPISTEMOLOGY
- Author
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Gabriel J. Zanotti and Nicolas Cachanosky
- Subjects
Austrian School ,History and Philosophy of Science ,General Arts and Humanities ,Philosophy ,Interpretation (philosophy) ,Character (symbol) ,General Economics, Econometrics and Finance ,Epistemology - Abstract
We argue that Fritz Machlup’s (1995) interpretation of Mises’s epistemology is at least as, if not more, plausible than Murray N. Rothbard’s (1957) interpretation. The implications of Machlup’s interpretation of Mises and of Austrian epistemology affect Austrians and non-Austrians in their academic interaction. Machlup’s interpretation shows that Austrian epistemology is well grounded in post-Popperian epistemology and that most criticisms of Austrian economics based on its aprioristic character are misplaced. Furthermore, Machlup’s interpretation provides us with a setting to rebuild the academic interaction between Austrians and non-Austrians that was characteristic of the early twentieth century.
- Published
- 2015
62. Roundaboutness is Not a Mysterious Concept: A Financial Application to Capital Theory
- Author
-
Nicolas Cachanosky and Peter Lewin
- Subjects
Financial application ,Roundaboutness ,Interpretation (philosophy) ,Political Science and International Relations ,Economics, Econometrics and Finance (miscellaneous) ,Economics ,Production (economics) ,Capital theory ,Neoclassical economics ,Period (music) ,Terminology - Abstract
We apply the EVA terminology to the concepts of roundaboutness and average period of production in capital theory. By doing this we show that these terms have a clear and well understood financial interpretation. A financial application to capital theory helps to clarify obscure and controversial economic terms.
- Published
- 2014
63. What Is So Extreme about Mises's Extreme Apriorism?: Reply to Scott Scheall
- Author
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Gabriel J. Zanotti and Nicolas Cachanosky
- Subjects
Psychology ,Praxeology ,Epistemology - Abstract
We reply to Scott Scheall’s What is so Extreme About Mises’s Extreme Apriorism. We restate the setting of the topic of our paper and we argue that Scheall is not providing a clear distinction between (a) Mises the person and his epistemological position and (b) praxeology and economics. We also clarify misrepresentations of our own positions in Scheall’s treatment of our paper.
- Published
- 2017
64. Austrian Economics, Market Process, and the EVA® Framework
- Author
-
Nicolas Cachanosky
- Subjects
Economics and Econometrics ,050208 finance ,Strategy and Management ,Profit maximization ,05 social sciences ,Economic Value Added ,Country risk ,Austrian School ,Microeconomics ,Accounting ,0502 economics and business ,Value (economics) ,Economics ,Production (economics) ,050207 economics ,Business and International Management ,Macro ,Finance ,Microfoundations - Abstract
In this paper I present a financial framework, known as Economic Value Added or EVA®, used to value firms and apply it to topics highlighted in the Austrian literature. In particular I contrast the market process emphasis in the Austrian literature with the neoclassical firm profit maximization and the role of Kirzner’s entrepreneurial alertness. Then I show how these micro topics can be aggregated into macro issues such as the Cantillon Effect, an aggregate average period of production, and the impact of country risk into value creation.
- Published
- 2017
65. The Role of Capital Structure in ABCT
- Author
-
Peter Lewin and Nicolas Cachanosky
- Subjects
Economy ,Capital structure ,Roundaboutness ,Financial analysis ,Economics ,Production (economics) ,Capital theory ,Neoclassical economics - Abstract
We argue that the application of financial analysis, especially that of duration, clarifies and supports the application of the average period of production in ABCT. We also suggest that the focus in the recent ABCT literature should be more on the average period of production (APP) and less in the stages of production as depicted in Hayek’s triangle in Garrison’s model.
- Published
- 2017
66. Unintended Consequences of ECB Policies
- Author
-
Andreas Hoffmann and Nicolas Cachanosky
- Subjects
Bust ,Unintended consequences ,Monetary policy ,Economics ,media_common.cataloged_instance ,Convergence (economics) ,Financial system ,Periphery countries ,Crisis management ,International economics ,European union ,media_common ,European debt crisis - Abstract
We revisit the unintended consequences of the European Central Bank’s (ECB) low-interest rate policies with a focus on the periphery countries of the European Union (EU) since the 2000s from a modern Austrian perspective. We argue that convergence expectations and the ECB’s expansionary monetary policy were conducive to credit booms that turned bust in 2007/8. The subsequent European debt crisis revealed that the money-induced credit boom also incentivized governments to increase borrowing at relatively low rates. Second, we shed some light on adverse effects of the ECB crisis management thru an Austrian lens. We suggest that ECB policies were not successful in stimulating bank lending and investment. The main beneficiaries of holding rates at low levels are governments, who use the financial leeway to delay painful reforms. Consequently, ECB policy has (unintentionally) slowed down the recovery in the crisis economies and worsened Europe’s growth prospects since 2009.
- Published
- 2017
67. The Grecian Horse: Does Immigration Lead to the Deterioration of American Institutions?
- Author
-
Alexandre Padilla and Nicolas Cachanosky
- Subjects
Economic freedom ,Political science ,Political economy ,media_common.quotation_subject ,Immigration ,Proxy (statistics) ,Institutional quality ,media_common - Abstract
Concerns about the institutional impact of immigration, particularly, in the United States, are not new. We can trace them all the way back to Thomas Jefferson and Alexander Hamilton. More recently, in response to a literature that questions the efficiency of current immigration restrictions, Borjas (2015) expresses similar concerns about the institutional impact of immigrants coming from countries with poor institutions. Using economic freedom as proxy for institutional quality of the American states since 1980, using several estimation techniques and control variables, our results show that concerns about the institutional impact of immigrants are so far not supported.
- Published
- 2017
68. The effects of U.S. monetary policy on Colombia and Panama (2002–2007)
- Author
-
Nicolas Cachanosky
- Subjects
Economics and Econometrics ,Floating exchange rate ,Exchange rate ,Latin Americans ,Capital structure ,Monetary policy ,Economics ,Business cycle ,Context (language use) ,International business ,Monetary economics ,Finance - Abstract
I study the economies of Colombia (floating exchange rate) and Panama (dollarized) to illustrate how the monetary policy of a large economy can export capital structure distortions to small open economies that follow different exchange rate regimes. The paper contributes to the literature on international business cycles in two ways. First, it adds to recent research that extends the Mises–Hayek business cycle theory to an international context. Second, most current research abstracts from effects on the production structures of emerging market economies when analyzing the transmission of monetary policy shocks. This paper seeks to fill this gap by studying structural effects of U.S. monetary policy on the economies of Colombia (floating exchange rate) and Panama (dollarized).
- Published
- 2014
69. Expectation in Austrian business cycle theory: Market share matters
- Author
-
Nicolas Cachanosky
- Subjects
Rational expectations ,Market economy ,Central bank ,Business cycle ,Factors of production ,Economic Value Added ,Austrian business cycle theory ,Market share ,General Economics, Econometrics and Finance ,Public finance - Abstract
One of the most important objections to the Mises-Hayek business cycle theory is the rational expectations critique. The debate between supporters and critics of the Mises-Hayek theory has not paid sufficient attention to the problem of differences in expectations and the market share in the allocation of production factors. I represent financially the effects that occur under the Austrian business cycle theory in the market of production factors as well as how economic imbalances occur when a central bank follows an expansionary policy and entrepreneurs have different expectations.
- Published
- 2014
70. Financial Foundations of Austrian Business Cycle Theory
- Author
-
Peter Lewin and Nicolas Cachanosky
- Subjects
Flexibility (engineering) ,Finance ,060106 history of social sciences ,Roundaboutness ,business.industry ,05 social sciences ,06 humanities and the arts ,Economic Value Added ,0502 economics and business ,Economics ,Production (economics) ,0601 history and archaeology ,Austrian business cycle theory ,050207 economics ,business - Abstract
In this paper, we study financial foundations of Austrian business cycle theory (ABCT). By doing this, we (1) clarify ambiguous and controversial concepts like roundaboutness and average period of production, (2) we show that the ABCT has strong financial foundations (consistent with its microeconomic foundations), and (3) we offer examples of how to use the flexibility of this approach to apply ABCT to different contexts and scenarios.
- Published
- 2016
71. Value and Capital: Austrian Capital Theory, Retrospect and Prospect
- Author
-
Peter Lewin and Nicolas Cachanosky
- Subjects
Roundaboutness ,Yield (finance) ,Capital (economics) ,Value (economics) ,Economics ,Production (economics) ,Context (language use) ,Macro ,Neoclassical economics ,Valuation (finance) - Abstract
The time is right for a reexamination of Austrian capital-theory. We attempt to capture the essence of Carl Menger’s approach to capital, highlighting the important distinction between goods and the valuable services they yield (implying that goods are valuable only because they yield valuable services) and highlighting also the importance of money in facilitating exchange and production and in providing the means to value them. We look at the capital-theory of Bohm-Bawerk and suggest that, in many respects, this was a wrong turn, although it did set in motion valuable efforts to clarify the importance of the heterogeneity of productive-resources and their growing complexity over time. We examine the production-function, micro and macro, and show that it is logically untenable and useless as an instrument for empirical investigation, and that this has been known for decades. Of the Austrians after Menger, only Mises followed Irving Fisher in focusing on valuation. He did so in the context of explaining the importance of calculation. Mises’s approach to capital has been insufficiently understood and appreciated. By way of conclusion we draw from our considerations to provide a research agenda in Austrian capital theory.
- Published
- 2016
72. Ludwig Von Mises's Approach to Capital as a Bridge between Austrian and Institutional Economics
- Author
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Peter Lewin, Nicolas Cachanosky, and Eduard Braun
- Subjects
Austrian School ,Capital (economics) ,Economics ,Institutional economics ,von Mises yield criterion ,Position (finance) ,Neoclassical economics ,Capitalism ,Bridge (interpersonal) - Abstract
Ludwig von Mises seems to be something of an outlier within the Austrian school when it comes to capital – though his position is clearly foreshadowed in a neglected article by Carl Menger (1888). In this paper we examine Mises’s view on capital and suggest that it constitutes a bridge between Austrian and institutional economics. As an outflow of Mises’s approach, an incipient financial approach may be discerned, an approach to capital that integrates concepts from financial theory into a broader view of capital that contains both institutional and Austrian elements.
- Published
- 2016
73. The Mises-Hayek business cycle theory, fiat currencies and open economies
- Author
-
Nicolas Cachanosky
- Subjects
Exchange rate ,Goods and services ,Capital structure ,Economy ,Monetary policy ,Business cycle ,Context (language use) ,Austrian business cycle theory ,Capital good ,General Economics, Econometrics and Finance - Abstract
This paper extends the Mises-Hayek business cycle theory to open economies with fiat currencies. I explore: (1) the problem of domestic versus international monetary policy with fiat currencies in an international setting. (2) How the feedback effects between central banks in the context of an expansionary monetary contributes to extend and transmit a Mises-Hayek business cycle from big economies to small financially integrated economies. I find that a lengthening of the period of production is not the only effect produced on the capital structure, but also a misallocation of capital goods between the production of tradable and non-tradable goods and services and that business cycles can become more severe when there are open economies with fiat currencies.
- Published
- 2012
74. Putting Capitalism Back into Capital
- Author
-
Peter Lewin and Nicolas Cachanosky
- Subjects
Physical capital ,Capital accumulation ,Means of production ,Financial capital ,Individual capital ,Economic capital ,Capital deepening ,Economics ,Economic system ,Neoclassical economics ,Fixed capital - Abstract
We agree with the recommendations of Hodgson (2014) and Braun (2015) to shift the focus away from capital as physical production-goods back to the common-sense and historical understanding of capital as money-borrowed for the purpose of acquiring productive resources to produce value. Much controversy, obscurity and confusion might have been avoided with this focus. The colloquial understanding of capital as financial-capital is to preferred to thinking of capital as a collection of physical things. A consideration of the role of time in production brings one to the realization that capital is the result of a process of evaluation, the result of ‘capital-accounting’. It is the ability to use capital-accounting that is in large part responsible for the phenomenal success of capitalism. Productive physical resources are all capital-goods, or preferably production-goods. They are different types of production-goods, human or non-human, and constitute a stock of potential value over time.
- Published
- 2015
75. Indirectly (Un)Productive Entrepreneurship
- Author
-
Nicolas Cachanosky and Alexandre Padilla
- Subjects
Entrepreneurship ,Market economy ,Public economics ,Government regulation ,Regulatory capture ,Unintended consequences ,Economic interventionism ,Psychological intervention ,Economics ,Profit (economics) - Abstract
Since Baumol (1990), the economic literature distinguishes between two broad categories of entrepreneurship: productive and unproductive entrepreneurship. This paper attempts to introduce a third category: indirectly (un)productive entrepreneurship. We argue that profit seeking entrepreneurs will decide to allocate their talents to indirectly (un)productive activities to meet individuals' new needs emerging as a result of government intervention. As a result, the resources used to meet these needs will be diverted from other uses. This paper argues that these profit opportunities are not the result of market entrepreneurial errors or successes but rather emerge artificially as a result of inefficiencies or unintended consequences that some government interventions produce. One implication of this paper is that we should observe increasing regulatory capture by businesses that will benefit from these "artificial" profit opportunities. This paper provides examples of indirectly (un)productive entrepreneurial activities that wouldn't have arise if it weren't for government regulation.
- Published
- 2015
76. An Empirical Application of the EVAA Framework to Business Cycles
- Author
-
Nicolas Cachanosky and Peter Lewin
- Subjects
Present value ,Financial economics ,Roundaboutness ,media_common.quotation_subject ,Monetary policy ,Business cycle ,Economics ,Economic Value Added ,Duration (project management) ,Investment (macroeconomics) ,Interest rate ,media_common - Abstract
Following financial concepts like duration and economic value added (EVA®) we estimate the impact of interest rate movements on firms that are more and less roundabout. We find that firms that are more roundabout, that is, work with expected cash-flows with higher duration, are more sensitive to interest rate movements. To the extent that monetary policy is able to move the discount rate used by investors, monetary policy changes the relative present value of any investment project and therefore affects resource allocation. We show evidence that this effect is present in the U.S. in the years prior to the subprime crisis.
- Published
- 2015
77. Argentina's Post-2001 Economy and the 2014 Default
- Author
-
Carolyn Thomas and Nicolas Cachanosky
- Subjects
Politics ,Economy ,Pari passu ,Financial crisis ,Economics ,Default ,Sovereign debt ,Economic stability ,Sovereign state - Abstract
With two sovereign debt defaults within the last thirteen years, Argentina represents an interesting case study on the causes and effects of defaults by sovereign states. Argentina has had a history of economic strife for the last one hundred years, largely due to political and economic instability. This paper discusses the economics of Argentina after the 2001 financial crisis that lead to the default in 2014. The paper also explains the main legal aspects for the Holdouts versus Argentina trial over the pari passu controversy, as well as discusses the different reactions to the trial and consequential default.
- Published
- 2015
78. The Myth of the Resource Curse: A Case Study for Algeria
- Author
-
Nicolas Cachanosky and Mohammed Akacem
- Subjects
Scholarship ,Politics ,Spanish Civil War ,Economy ,Resource curse ,media_common.quotation_subject ,Political economy ,Mythology ,Sociology ,Empirical evidence ,Independence ,Democracy ,media_common - Abstract
In October 1988, Algeria went through the autumn of its own discontent and yet more than two decades later, the country is still ruled by the "old guard", namely the veterans of the war of independence. This paper examines the reasons Algeria has resisted the winds of change blowing through the region with emphasis in the role of oil and democracy. Much of the scholarship that deals with the resource curse concludes that Oil is at the root of economic troubles and social unrest. This is not the case in Algeria, rather like many countries, its institutions are what greatly affect the economic and political ills of the country. The paper highlights the importance of institutions and presents empirical evidence to support the claim that contrary to Jeffrey Sachs they matter for everything.
- Published
- 2015
79. The Time-Value of Money and the Money-Value of Time: Duration, Roundaboutness, Productivity and Time-Preference in Finance and Economics
- Author
-
Nicolas Cachanosky and Peter Lewin
- Subjects
Labour economics ,Physical capital ,Financial capital ,Cost of capital ,Individual capital ,Economic capital ,Capital employed ,Economics ,Capital intensity ,Neoclassical economics ,Fixed capital - Abstract
The colloquial understanding of capital as financial-capital is after-all close to the mark, at least closer than thinking of capital as a collection of physical things. The latter is perhaps responsible for more confusion and controversy than clarity. A consideration of the role of time in production and investment decisions, as explored in this paper, brings one to the realization that capital is the result of a process of evaluation. Capital is the result of ‘capital-accounting’. It is the ability to use capital accounting that is in large part responsible for the phenomenal success of capitalism. Productive physical resources, whether natural or produced, are either never capital in this sense or else are all capital. They are never capital in their pure physical nature. But they are all different types of capital, human or non-human, when considered as a stock of potential value over time. What is the best way to think about capital? Yeager (1976) suggests that it makes sense to think of capital as a stock of ‘waiting’ whose price is the interest-rate. Some combination of D (duration) and NPV, an amalgam D-NPV may capture this idea and the subtle way in which time and value interact in economic life. Is capital (as opposed to a capital-good) a factor of production? Yes, if you consider it necessary for production to occur. Physical inputs have to be financed, in the broadest sense of that term, because they have to be deployed over time, and can be so deployed in various configurations. That is the function of capital, a valuable function, for which there is a scarcity-price, the rate-of-interest. But it is not physically measurable. As explained above, it is the result of the interplay between the time-value of money and the money-value of time so nicely captured in the concept of duration.
- Published
- 2015
80. NGDP Targeting: Is 5 Percent Too Much?
- Author
-
Nicolas Cachanosky
- Subjects
Keynesian economics ,Interpretation (philosophy) ,media_common.quotation_subject ,Monetary policy ,Disequilibrium ,International economics ,Taylor rule ,Interest rate ,Market monetarism ,Economics ,medicine ,medicine.symptom ,Nominal income ,media_common - Abstract
This paper examines whether the "market monetarism" prescribing a 5% yearly NGDP growth rate was too much between the dot-com and the subprime mortgage crises. To do this I search for evidences of monetary disequilibrium in other variables such as trend deviations, the behavior of intermediate prices, and interest rates. I find evidences that suggest that the 5% growth of NGDP in the years prior to the crisis might have been excessive. Although this observation does not question the principle behind NGDP targeting, it suggests that the target should be carefully chosen. This result is also consistent with the interpretation that monetary policy was too loose for too long from 2002 to 2007 following other indicators such as the Taylor Rule.
- Published
- 2015
81. Monetary Policy, the Composition of GDP, and Crisis Duration in Europe
- Author
-
Nicolas Cachanosky and Andreas Hoffmann
- Subjects
050208 finance ,Output elasticity ,media_common.quotation_subject ,05 social sciences ,European central bank ,Monetary policy ,jel:E32 ,Monetary Policy ,Interest Rate Sensitivity ,Crisis Duration ,GDP Composition ,International economics ,jel:E52 ,jel:E58 ,Boom ,Interest rate ,0502 economics and business ,Political Science and International Relations ,Economics ,Production (economics) ,050207 economics ,Business and International Management ,Duration (project management) ,General Economics, Econometrics and Finance ,Composition (language) ,media_common - Abstract
This paper analyzes the effects of changes in interest rates on the composition of production in 10 European countries during the boom period of the 2000s. We find that output elasticity differs across industries and across countries for similar industries. The paper suggests that in the run-up to the 2008 crisis, the European Central Bank's low interest rate policy affected the allocation of resources across industries. This may explain the sluggish overall recovery from the crisis in Europe.
- Published
- 2014
82. A Comment on Barnett and Block on Time Deposit and Bagus and Howden on Loan Maturity Mismatching
- Author
-
Nicolas Cachanosky
- Subjects
Economics and Econometrics ,General Business, Management and Accounting ,Maturity (finance) ,Argumentation theory ,Time deposit ,Extension (metaphysics) ,Arts and Humanities (miscellaneous) ,Property rights ,Argument ,Loan ,Economics ,Business and International Management ,Business ethics ,Law ,Law and economics - Abstract
In Time Deposits, Dimension, and Fraud (2009), William Barnett and Walter Block argue that by borrowing short and lending long there is an over issuance of property rights. Their article, however, does not fully extend the consequences of their contribution. Once this is done, it becomes clearer that their argument suits a great impediment to banking, becoming a possible reason to support rather than to oppose fractional reserve banking. Bagus and Howden (J Bus Ethics 90(3):399–406, 2009) comment on Barnett and Block (J Bus Ethics 88(4):711–716, 2009), the authors claim that while maintaining the illegitimacy of fractional reserve deposits, borrowing short and lending long it is actually not illegitimate. An extension on Bagus and Howden (2009) will show that their line of argumentation can be applied as a defense of fractional reserve banking as well.
- Published
- 2011
83. A Financial Framework for Understanding Macroeconomic Cycles: The Time Structure of Production is Relevant
- Author
-
Nicolas Cachanosky and Peter Lewin
- Subjects
Macroeconomics ,Finance ,business.industry ,Roundaboutness ,media_common.quotation_subject ,Interest rate ,Microeconomics ,Market mechanism ,Business cycle ,Economics ,Resource allocation ,Production (economics) ,Asset (economics) ,Duration (project management) ,business ,media_common - Abstract
A comprehensive understanding business-cycles needs to account not only for the allocation of resources over time, but also for resource allocation across industries at any point in time. Intertemporal disequilibrium has been a common theme of many theories of the business-cycle. But to properly understand how these “time-distortions” take place and how the price-mechanisms that drive them work, a clear and well-defined conceptualization of the “average length” of the structure of production, is required. The insights provided by Macaulay’s duration and Hicks’s Average Period do this. We show that financial duration and related concepts have a direct connection to macroeconomic stability. By doing this we point to important implications for macroeconomic policy. We claim not only that a low interest rate contributes to the creation of asset bubbles, we show also the market mechanism through which the real sector is affected. We argue that to accept that duration matters for resource allocation is to accept the core of the Austrian Theory of the Business Cycle (ABCT) and, therefore, that to reject the ABCT core thesis suggests also rejecting the importance of duration for resource allocation.
- Published
- 2014
84. The Average Period of Production: The History of an Idea
- Author
-
Peter Lewin and Nicolas Cachanosky
- Subjects
Blind alley ,Roundaboutness ,Business cycle ,Economics ,Capital theory ,Actuary ,Neoclassical economics ,Mathematical economics ,Intuition - Abstract
Austrian capital theory tried to capture the intuitive and basically undeniable importance that time plays in economic life, but arguably was diverted down a blind alley with Bohm-Bawerk’s average period of production, a purely physical measure of 'roundaboutness' -- the length of the production process. Such a measure is a chimera. But the intuition is strong and the idea survived and reappeared at various points in the history of capital theory. Almost unknown to economists an alternative value measure of roundaboutness existed at least since Hick’s formulation of his average period (AP) in 1939, which, coincidentally was exactly the same measure discovered by the financial actuary Frederick Macaulay in 1938, called by him duration (D). Macaulay’s D, more richly interpreted as Hicks’s AP, is a measure that more appropriately captures what it was that the Austrians struggled to express over many years in their capital theory and in their analysis of the business cycle.
- Published
- 2014
85. Financial Foundations of Austrian Business Cycle Theory
- Author
-
Nicolas Cachanosky and Peter Lewin
- Published
- 2014
86. The Average Period of Production: History of an Idea
- Author
-
Peter Lewin and Nicolas Cachanosky
- Published
- 2014
87. The Implications of Hayek's Knowledge Problem
- Author
-
Nicolas Cachanosky and Alexandre Padilla
- Subjects
Reading (process) ,media_common.quotation_subject ,Philosophy ,Order (virtue) ,media_common ,Epistemology - Abstract
We argue that the canonical reading of Hayek often falls short of the implications of Hayek’s insights. We present Hayek’s "knowledge problem" (how order in a society is possible without the required knowledge for that order being possessed by any particular individual), and we discuss some of the implications that follow from Hayek’s work. We show that Hayek’s "knowledge problem" has deep economic and philosophical implications.
- Published
- 2014
88. Hayek’s Rule, NGDP Targeting, and the Productivity Norm: Theory and Application
- Author
-
Nicolas Cachanosky
- Subjects
Market monetarism ,Norm (philosophy) ,Keynesian economics ,Monetary policy ,Economics ,Economic stress ,Price of stability ,Nominal income ,Productivity - Abstract
The 2008 crisis demonstrated that, absent inflationary pressures, significant economic stress can occur as a consequence of loose monetary policy. This scenario raises the question as to whether there is a better alternative to price stability as a guiding principle for monetary policy. In this paper, I explore the theoretical insights of the productivity norm, its superiority to price stability in the form of Hayek’s Rule and market monetarism’s NGDP Targeting as the focus of monetary policy, and the challenges of applying such principles by central banks.
- Published
- 2014
89. Fiscal Policy and Crowding Out Effects in Capital Based Macroeconomics with Idle Resources
- Author
-
Nicolas Cachanosky and Adrian O. Ravier
- Subjects
Macroeconomics ,Idle ,ComputingMilieux_THECOMPUTINGPROFESSION ,Capital (economics) ,Economics ,Business cycle ,Production (economics) ,Potential output ,Crowding out ,Fiscal policy - Abstract
While Garrison’s model has been mostly used to analyze, theoretically and empirically, business cycles, other potential venues have not been explored. The effects of fiscal policy is one of these applications. In this paper we show how Garrison’s model can be used to analyze the effects of fiscal policy in the presence of idle resources. This yields two important results. Particularly, our application of Garrison’s model shows that even if starting with idle resources fiscal policy manages to reach potential output, the result is imbalances in how resources are allocated in the structure of production of the economy.
- Published
- 2014
90. Una Propuesta De Reforma Monetaria Para Argentina: Dolarizaciin Flexible Y Banca Libre (A Proposal of Monetary Reform for Argentina: Flexible Dollarization and Free Banking)
- Author
-
Nicolas Cachanosky and Adrian O. Ravier
- Subjects
Geography ,biology ,Economy ,Welfare economics ,Monetary reform ,Monetaria ,biology.organism_classification ,Free banking - Abstract
Spanish Abstract: La economia y las instituciones monetarias de la Argentina estan experimentando, una vez mas, una profunda crisis. En este documento nos proponemos plantear una reforma monetaria para Argentina que consiste en una dolarizacion flexible junto a un regimen de banca libre. Por dolarizacion flexible nos referimos a que el peso debe ser reemplazado por el dolar de EE.UU. como un primer paso, pero el mercado debe tener la libertad de interactuar con cualquier moneda que seleccione. Por lo tanto, el pais no se apega al dolar, por el contrario, se convierte en un pais con libre eleccion monetaria. Por banca libre nos referimos a que se permita a las instituciones financieras emitir sus propios billetes convertibles en dolares estadounidenses o cualquier otra moneda o mercancia de su eleccion.Cabe senalar que los problemas de la economia argentina van mas alla de aquellos relativos a la politica monetaria. Esta propuesta no debe entenderse como una reforma suficiente para arreglar la economia argentina, sino unicamente como una reforma necesaria. Esta propuesta tampoco debe entenderse como una panacea monetaria, sino como un marco monetario que es superior al que ha proporcionado el Banco Central de la Republica Argentina (BCRA) y los politicos argentinos a su pais.English Abstract: Argentina’s economy and monetary institutions are, once again, experiencing a serious crisis. In this document, we propose a monetary reform for Argentina that consists of flexible dollarization plus a free banking regime. By flexible dollarization, we mean that the peso should be replaced with the U.S. dollar as a first step, but the market should have the freedom to interact with any selected currency. Therefore, the country does not become attached the U.S. dollar; on the contrary, it becomes a free currency country. By free banking, we mean giving financial institutions permission to issue their own banknotes convertible into U.S. dollars or any other currency or commodity of their choice.It should be noted that the problems of the Argentine economy go beyond those of monetary policy. This proposal should not be understood as a sufficient reform to fix the Argentinean economy but as a necessary one. This proposal should also not be understood as a monetary panacea but as a monetary framework that is still superior to one provided by the Argentine central bank BCRA and Argentine policy makers to their country.
- Published
- 2014
91. Risk Structure of Production in Garrison's Model
- Author
-
Nicolas Cachanosky
- Subjects
Structure (mathematical logic) ,Extension (metaphysics) ,Roundaboutness ,Economics ,Austrian business cycle theory ,Dimension (data warehouse) ,Representation (mathematics) ,Mathematical economics ,Exposition (narrative) ,Interpretation (model theory) - Abstract
In Young (2012a), an extension of Garrison’s (2001) graphical exposition of Austrian Business Cycle Theory (ABCT) is developed that models the risk structure (as well as the time structure) of production. However, in that extended exposition, there are problems of interpretation involving changes in the area of the “risk triangle.” Despite this, I believe that the arguments for extending ABCT to systematically consider distortions in productive structures beyond the degree of “roundaboutness” are compelling. In this paper, I develop an alternative extension of Garrison’s graphical exposition that incorporates a risk structure. This alternative improves upon Young’s original by (1) having a representation of risk structure that is straightforward and (2) explicitly introducing a risk dimension to the production possibilities. I apply the risk-extended Garrison’s model to the 2007-2009 U.S. recession.
- Published
- 2014
92. Roundaboutness Is Not a Mysterious Concept: A Financial Application to Capital Theory
- Author
-
Peter Lewin and Nicolas Cachanosky
- Subjects
Financial application ,Duration (philosophy) ,Roundaboutness ,Interpretation (philosophy) ,Economics ,Production (economics) ,Austrian business cycle theory ,Neoclassical economics ,Mathematical economics ,Period (music) ,Terminology - Abstract
We apply the EVA terminology to the concepts of roundaboutness and average period of production in capital theory. By doing this we show that these terms have a clear and well understood financial interpretation. A financial application to capital theory helps to clarify obscure and controversial economic terms. We then extend our financial interpretation of roundaboutness and average period of production to the Austrian business cycle theory and show how this approach can be used to shed light on the subprime crisis.
- Published
- 2014
93. A Proposal of Monetary Reform for Argentina: Flexible Dollarization and Free Banking
- Author
-
Adrian O. Ravier and Nicolas Cachanosky
- Subjects
Panacea (medicine) ,Convertible ,Currency ,Monetary policy ,Liberian dollar ,Monetary reform ,International economics ,Monetary economics ,Business ,Monetary base ,Commodity (Marxism) - Abstract
Argentina’s economy and monetary institutions are, once again, experiencing a serious crisis. In this document, we propose a monetary reform for Argentina that consists of flexible dollarization plus a free banking regime. By flexible dollarization, we mean that the peso should be replaced with the U.S. dollar as a first step, but the market should have the freedom to interact with any selected currency. Therefore, the country does not become attached the U.S. dollar; on the contrary, it becomes a free currency country. By free banking, we mean giving financial institutions permission to issue their own banknotes convertible into U.S. dollars or any other currency or commodity of their choice.It should be noted that the problems of the Argentine economy go beyond those of monetary policy. This proposal should not be understood as a sufficient reform to fix the Argentinean economy but as a necessary one. This proposal should also not be understood as a monetary panacea but as a monetary framework that is still superior to one provided by the Argentine central bank BCRA and Argentine policy makers to their country.
- Published
- 2014
94. The Epistemological Implications of Machlup's Interpretation of Mises's Epistemology
- Author
-
Gabriel J. Zanotti and Nicolas Cachanosky
- Subjects
Austrian School ,Interpretation (philosophy) ,Philosophy ,Epistemology - Abstract
We argue that Machlup's (1955) interpretation of Mises’s epistemology is at least, if not more, plausible than Rothbard's (1957). The implications of Machlup’s interpretation of Mises and Austrian epistemology affect Austrians, non-Austrians and how they relate to each other. Machlup’s interpretation shows that Austrian’s epistemology is well grounded and that most criticisms of Austrian economics based on their aprioristic characteristic are misplaced. Furthermore, Machlup’s interpretation provides a potential road to re-built the academic interaction between Austrians and non-Austrians that was characteristic of the early twentieth century.
- Published
- 2013
95. Hayek's Rule, NGDP Targeting, and the Productivity Norm: Theory and Application
- Author
-
Nicolas Cachanosky
- Subjects
Macroeconomics ,Inflation targeting ,Monetary policy ,Economics ,Price level ,Economic stress ,Norm (social) ,Price of stability - Abstract
The 2008 crisis demonstrated that, absent inflationary pressures, significant economic stress can occur as a consequence of loose monetary policy. This scenario raises the question as to whether there is a better alternative to price stability as a guiding principle for monetary policy. In this paper, I explore the theoretical insights of the productivity norm, its superiority to price stability as the focus of monetary policy, and the challenges of applying such principles by central banks.
- Published
- 2013
96. U.S. Monetary Policy's Impact on Latin America's Structure of Production (1960-2010)
- Author
-
Nicolas Cachanosky
- Subjects
Credit channel ,Bust ,Federal funds ,Economic sector ,Monetary policy ,Economics ,Capital intensity ,International economics ,Distortion (economics) ,Monetary hegemony - Abstract
In this article, I study the effects of U.S. monetary policy on Latin America’s production structure prior to two recent economic crises. In particular, I study the effects of monetary policy on the real economy at the industrial level. I find that changes in the Federal Funds rate produce uneven effects on output trends across economic sectors. I find that industries that are more capital intensive and involved in relatively long-term projects are more sensitive to changes in the Federal Funds rate than industries that are less capital intensive and involved in relatively short-term projects. Therefore, periods of loose monetary policy result in a misallocation of resources that is costly to correct during a bust. This result finds a particular pattern of economic distortion during an unsustainable boom.
- Published
- 2013
97. The View from Vienna: An Analysis of the Renewed Interest in the Mises-Hayek Theory of the Business Cycle
- Author
-
Alexander William Salter and Nicolas Cachanosky
- Subjects
Structure (mathematical logic) ,Financial crisis ,Realm ,Economics ,Dynamic stochastic general equilibrium ,Business cycle ,Production (economics) ,Arbitrage ,Austrian business cycle theory ,Neoclassical economics - Abstract
This paper analyses the renewed scholarly interest in the Mises-Hayek, or “Austrian,” theory of the business cycle since the 2008 financial crisis. Understandably, the economics profession has broadened its search for the crises’s explanation beyond the standard DSGE framework. Austrian business cycle theory, with its emphasis on the importance of the monetary system for resource allocation and the linkage of consumer demand with producer supply through the coordination of the economy’s structure of production, offers a fruitful realm for productive intellectual arbitrage in business cycle research. After reviewing the post-crisis literature that engages Austrian business cycle theory, we discuss what is being said that is correct, what is being said that is incorrect, and what is not being said that ought to be said. This last category is most important largely due to the fact that the post-crisis literature engaging Austrian business cycle theory has not addressed advances in the theory made since the days of Mises and Hayek. We also present modern work being done on Austrian business cycle theory and highlight three key areas of contemporary economics where Austrian business cycle theory has the potential to do significant work.
- Published
- 2013
98. Adverse Selection Problem and the Rational Expectations Critique of the Mises-Hayek Business Cycle Theory
- Author
-
Nicolas Cachanosky
- Subjects
Rational expectations ,Market economy ,Central bank ,Monetary policy ,Business cycle ,Adverse selection ,Economics ,Factors of production ,Austrian business cycle theory ,Neoclassical economics ,Market share - Abstract
One of the most important objections to the Mises-Hayek business cycle theory is the rational expectations critique. The debate between supporters and critics of the Mises-Hayek theory has not paid sufficient attention to the problem of differences in expectations and the market share in the allocation of production factors. I represent financially the effects that occur under the Austrian business cycle theory in the market of production factors as well as how economic imbalances occur when a central bank follows an expansionary policy and entrepreneurs have different expectations.
- Published
- 2012
99. The International Effects of Monetary Policy in the Capital Structure of Production: The Cases of Colombia and Panama (2002-2007)
- Author
-
Nicolas Cachanosky
- Subjects
Shock (economics) ,Floating exchange rate ,Exchange rate ,Small open economy ,Monetary policy ,Business cycle ,Economics ,International economics ,Exchange-rate regime ,Monetary hegemony - Abstract
I study the economies of Colombia (floating exchange rate) and Panama (dollarized) to illustrate how the monetary policy of a large economy can export capital structure distortions to small open economies that follow a different exchange rate regime. If these distortions bear enough weight, then economies with different exchange rate regimes include a common factor that causes their business cycles to appear similar, despite the conventional prediction which focuses on exchange rate as a transmission mechanism or moderator of a monetary shock.
- Published
- 2012
100. Huerta De Soto’s Concerted Expansion: A Prisoner’s Dilemma in Free Banking?
- Author
-
Nicolas Cachanosky
- Subjects
Dilemma ,Fiduciary ,Incentive ,Market economy ,Economics ,Prisoner's dilemma ,Free banking ,Law and economics - Abstract
Concerted expansion is a common concern in free banking. This situation is sometimes expressed as a prisoner’s dilemma game, as Huerta de Soto (1998 [2006], pp. 664-671) does to show that banks have incentives to collude and expand fiduciary media. This approach, however, does not accurately describe the problem; the prisoner’s dilemma provides an unsound description of concerted expansion in free banking. This commentary focuses on six limitations to applying the prisoner’s dilemma game to model concerted expansion in free banking.
- Published
- 2012
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