Guillermo Antonio Calvo
|Born||1941 (age 80–81)|
|Field|| Macroeconomics |
|New Keynesian economics|
|Alma mater||Yale (Ph.D. 1974, M.A. 1965) University of Buenos Aires|
|Influences||Edmund Phelps, Julio Olivera|
|Information at IDEAS / RePEc|
Guillermo Antonio Calvo (born 1941) is an Argentine-American economist who is Director of Columbia University's mid-career Program in Economic Policy Management in their School of International and Public Affairs (SIPA).
He published significant research in macroeconomics, especially monetary economics and the economics of emerging markets and transition economies.
Guillermo Antonio Calvo is Professor of Economics, International and Public Affairs, and Director of the Program in Economic Policy Management (PEPM) at Columbia University since January 2007. He is a Research Associate at the National Bureau of Economic Research (NBER). He is the former Chief Economist of the Inter-American Development Bank (2001–2006), President of the Latin American and Caribbean Economic Association, LACEA, 2000–2001, and President of the International Economic Association, IEA, 2005–2008. He graduated with a Ph.D. from Yale in 1974.
He was professor of economics at Columbia University (1973–1986), the University of Pennsylvania (1986–1989), and Distinguished University Professor at the University of Maryland (1993–2006). He was Senior Advisor in the Research Department of the IMF (1988–1993), and afterwards advised several governments in Latin America and Eastern Europe.
His award and honors include the following: Fellow of the National Academy of Economic Sciences (Argentina), since 1993. Fellow of the Econometric Society, since 1995. King Juan Carlos Prize in Economics, October 2000. Fellow of the American Academy of Arts and Sciences, since 2005. The Latin America and Caribbean Association (LACEA) Carlos Diaz Alejandro Prize, 2006. Doctor Honoris Causa, Di Tella University, Buenos Aires, Argentina, 2012. On April 15–16, 2004, the Research Department of the IMF sponsored a conference in his honor.
Calvo showed his commitment to narrowing the gap between academic and practitioners by splitting his time between academia and international financial institutions. In the latter, he was instrumental in helping to set up world class research departments in the International Monetary Fund (where he was a Senior Advisor during 1990–1992) and the Inter-American Development Bank (where he was the Chief Economist during 2001–2006). His IMF research on the relevance of external factors and the bond market, led eventually to a refocusing of the analysis in the IMF area departments, paying more attention to external financial conditions, and maturity and currency denomination of public and private debt (for further details, see the various Interviews in the list of references).
Calvo's research covers a wide variety of issues. The focus of his current research is Emerging Market economies (EMs). Calvo's work aims at incorporating financial sector issues in macroeconomic models and emphasizes the role of external factors in EMs. His research has helped to highlight factors that received renewed attention in the context of the subprime crisis. His contributions remain widely cited in academic and policy circles, such as his 1988 “Servicing the Public Debt: The Role of Expectations” and his 1991 “Perils of Sterilization.”
The Calvo pricing approach widely used by global central banks is named after him. It is one way of modelling sticky prices for example in New Keynesian DSGE-models (compare Calvo (staggered) contracts).
Expressions like "Calvo equation," "Sudden Stop," "Fear of Floating" – found in, or linked to, his papers – are common currency in the financial jargon. Several EMs have benefited from his research showing the severe risks imposed by the combination of high current account deficit, "dollarization," and financial contagion. This line of research led several economies in Latin America to taking defensive action and, thus, to navigate through the Lehman crisis without plunging into deep and long-lasting crisis, as was the case in other economies that exhibited large current account deficits (e.g., Iceland and the Baltic economies).
Calvo has published several books and over 100 journal articles.Selected contributions follow
This paper is a frontrunner in the theory of Sunspot Equilibrium. It shows that a conventional overlapping-generations model can give rise to equilibrium multiplicity and, moreover, that the latter phenomenon is more likely to arise if the propensity to save is relatively inelastic with respect to the real interest rate, a case akin to that emphasized in Keynes's General Theory.
These papers show examples in which incomplete labor contracts could give rise to unemployment. The AER 1978 paper (Ref. 2a) is a seminal paper in this field and predates by more than five years the celebrated paper by Carl Shapiro and Joseph Stiglitz ("Equilibrium Unemployment as a Worker Discipline Device," in: American Economic Review 1984, p. 433–444). Ref. 2b further shows that this type of unemployment equilibrium is Pareto inefficient, and can be improved upon by fiscal policy. This is another 'first' in this literature.
These are papers in the area of “policy credibility.” The Econometrica 1978 Time Inconsistency paper (Ref. 3a) follows on the lines of the paper by Finn E. Kydland and Edward C. Prescott (for which the authors deservedly got a Nobel Prize. According to Calvo (in his book Money, Exchange Rate and Output, MIT Press 1996), his research was independent and he only became aware of the Kydland-Prescott paper when his paper was about to be accepted for publication (Prescott was one of the referees). In contrast with the Kydland-Prescott paper, Calvo's starts from standard micro-foundations in a Patinkin-Sidrauski economy. However, the paper's major value added was not so much getting an alternative proof of Time Inconsistency but, rather, proving that time inconsistency holds even if the government aims at maximizing social welfare. This is a fundamental result because it dispels any doubt one might have that time inconsistency follows from just the government trying to cheat the public by making promises that it does not intend to honor.
Calvo’s Time Inconsistency paper was the first step in a research program involving credibility issues. Ref. 3b sets the grounds for the conjecture that inflation stabilization is especially hard to achieve and enhances social costs if policymakers cannot convey a credible message that they are willing and able to implement the necessary policies to secure lower and more stable inflation. Prior to this paper, the dominant explanation for costly price stabilization programs relied on mechanical factors like adaptive expectations/Phillips curve. An advantage of Calvo's approach is that it highlights the relevance of central banks' ability to communicate with the public and the importance of getting strong support from the rest of the government and political apparatus, even though individuals are fully rational. Ref. 3b spawned a large literature dealing with EMs.
The 1979 JPE paper (Ref. 4a), contains a model examining the implications of imperfect information within the firm on the firm's wage distribution. This paper received considerable attention; it provides one of the earliest frameworks that help to explain, for instance, why a CEO can earn multiples of his/her underlings' salaries. The supervision technology in this paper is similar to the one utilized in Ref. 2 in connection with the issue of efficiency wages. The two key assumption are "loss of control" – which give rise to a hierarchical supervisory firm structure – and costly supervision. The combination of these two factors is shown to imply that the wage rate is a function of one's position in the hierarchy: the closer to the top of the hierarchical ladder, the higher the wage, even if individuals are, to all intents and purposes, identical. Ref. 2 & 4 are two outstanding examples of Calvo's research inspired by the conjecture that salient macro phenomena could be rooted in frictions within firms, a conjecture linked to the pioneering papers by Edmund Phelps et al.
This paper ranks first in Calvo's citations (more than 5700 citations according to Google Scholar, henceforth GM).The approach was first developed to clarify price stabilization puzzles in EMs, but was eventually incorporated as a fundamental component in New Keynesian economics. It does not involve an original idea, which hails back to papers by Edmund Phelps and John B. Taylor. The main value added is 'simplicity.' The paper continues to be a key assumption in central banks' monetary models — where it is usually referred to as 'the Calvo Equation'.
This paper shows that under incomplete capital markets, public debt can give rise to multiple equilibriums which can be Pareto ranked. In the 'bad' equilibrium interest rates are high and lead to counterproductive behavior, e.g., high inflation or debt default; while in the 'good' equilibrium none of the latter takes place. The AER 1988 paper was motivated by stubborn high inflation in Brazil, despite low public debt and positive primary fiscal surplus. According to the paper this situation may result from a long record of high inflation that lead individuals to disbelieve official stabilization announcements, keeping interest rates high. The latter feeds into high fiscal deficit, validating high-inflation expectations – even under rational expectations. These ideas have acquired new significance in the present EU crisis. In this case, default, not high inflation, is at the heart of the debate. However, the model can also be applied (as shown in the original Calvo paper). This has led to active research in this subfield, and already appears to have guided ECB policy of trying to keep sovereign debt interest rates low by promising to purchase 'unlimited' amounts of public debt obligations in the euro zone. This is another example of the relevance of Calvo's research in the debate of central policy issues.
This is a short list of Calvo's papers focused on capital flows and financial crises. It is an area in which Calvo is still actively engaged. His first papers go back to the early 1980s, but his research on these topic took flight after the Mexican Tequila crisis in 1994/5 triggered by a sudden increase in US interest rates. Ref. 7b highlighting the relevance of the balance-sheet approach for understanding some of the puzzling dynamics of financial crisis, an issue that had so far been largely obliterated in the literature. This paper was circulated soon after that episode and helped to set the stage for sharply different explanations from the one offered in the seminal paper on the mechanics of balance of payment crisis by Paul Krugman. Ref.7c crowned this effort by defining and offering some simple but fundamental rationalization for a new concept that since then has become part of the economists’ jargon in the discussion of financial crises, namely, ‘Sudden Stop’. The paper focuses on large and largely unexpected declines in capital inflows, a characteristic of all major crises in EMs since at least the 1990s. Sudden Stop and empirical analyses carried out in 7f have become familiar staple in the literature that now stretches beyond EU.
Ref 7e shows that despite fixed exchange rates being singled out as a major factor in EM crises in the 1990s, governments in those economies continue 'pegging' their currencies in one way or another. This is an empirical paper which is still very visible and has more than 3100 citations according to GS. Finally, 7a is another empirical paper showing that capital inflows in Latin America are highly sensitive to external factors. The paper is widely cited (more than 1450 citations according to GS) and has become highly topical in the current conjuncture.
Franco Modigliani was an Italian-American economist and the recipient of the 1985 Nobel Memorial Prize in Economics. He was a professor at University of Illinois at Urbana–Champaign, Carnegie Mellon University, and MIT Sloan School of Management.
New Keynesian economics is a school of macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of new classical macroeconomics.
Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit; the opposite of budget surplus. The term may be applied to the budget of a government, private company, or individual. Government deficit spending was first identified as a necessary economic tool by John Maynard Keynes in the wake of the Great Depression. It is a central point of controversy in economics, as discussed below.
Monetary economics is the branch of economics that studies the different competing theories of money: it provides a framework for analyzing money and considers its functions, and it considers how money can gain acceptance purely because of its convenience as a public good. The discipline has historically prefigured, and remains integrally linked to, macroeconomics. This branch also examines the effects of monetary systems, including regulation of money and associated financial institutions and international aspects.
Economic data are data describing an actual economy, past or present. These are typically found in time-series form, that is, covering more than one time period or in cross-sectional data in one time period. Data may also be collected from surveys of for example individuals and firms or aggregated to sectors and industries of a single economy or for the international economy. A collection of such data in table form comprises a data set.
In economics, hot money is the flow of funds from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts. These speculative capital flows are called "hot money" because they can move very quickly in and out of markets, potentially leading to market instability.
Nominal rigidity, also known as price-stickiness or wage-stickiness, is a situation in which a nominal price is resistant to change. Complete nominal rigidity occurs when a price is fixed in nominal terms for a relevant period of time. For example, the price of a particular good might be fixed at $10 per unit for a year. Partial nominal rigidity occurs when a price may vary in nominal terms, but not as much as it would if perfectly flexible. For example, in a regulated market there might be limits to how much a price can change in a given year.
Edmund Strother Phelps is an American economist and the recipient of the 2006 Nobel Memorial Prize in Economic Sciences.
The Latin American debt crisis was a financial crisis that originated in the early 1980s, often known as La Década Perdida, when Latin American countries reached a point where their foreign debt exceeded their earning power, and they were not able to repay it.
Anthony Patrick Leslie Minford is a British macroeconomist who is professor of applied economics at Cardiff Business School, Cardiff University, a position he has held since 1997. He was Edward Gonner Professor of Applied Economics at the University of Liverpool from 1976 to 1997. In 2016, Minford was a notable member of the Economists for Brexit group which, in opposition to the consensus view of economists, advocated the UK leaving the European Union.
Olivier Jean Blanchard is a French economist and professor who is a senior fellow at the Peterson Institute for International Economics. He was the chief economist at the International Monetary Fund from September 1, 2008, to September 8, 2015. Blanchard was appointed to the position under the tenure of Dominique Strauss-Kahn; he was succeeded by Maurice Obstfeld. He also is a Robert M. Solow Professor of Economics emeritus at the Massachusetts Institute of Technology (MIT). He is one of the most cited economists in the world, according to IDEAS/RePEc.
A sudden stop in capital flows is defined as a sudden slowdown in private capital inflows into emerging market economies, and a corresponding sharp reversal from large current account deficits into smaller deficits or small surpluses. Sudden stops are usually followed by a sharp decrease in output, private spending and credit to the private sector, and real exchange rate depreciation. The term “sudden stop” was inspired by a banker’s comment on a paper by Rüdiger Dornbusch and Alejandro Werner about Mexico, that “it is not speed that kills, it is the sudden stop”.
Inflationism is a heterodox economic, fiscal, or monetary policy, that predicts that a substantial level of inflation is harmless, desirable or even advantageous. Similarly, inflationist economists advocate for an inflationist policy.
Original sin is a term in economics literature, proposed by Barry Eichengreen, Ricardo Hausmann, and Ugo Panizza in a series of papers to refer to a situation in which "most countries are not able to borrow abroad in their domestic currency."
Domestic liability dollarization (DLD) refers to the denomination of banking system deposits and lending in a currency other than that of the country in which they are held. DLD does not refer exclusively to denomination in US dollars, as DLD encompasses accounts denominated in internationally traded "hard" currencies such as the British pound sterling, the Swiss franc, the Japanese yen, and the Euro.
Carlos A. Végh is a Uruguayan academic economist who, since 2013, is the Fred H. Sanderson Professor of International Economics at the Johns Hopkins School of Advanced International Studies (SAIS), and holds a joint appointment with Johns Hopkins' Department of Economics. He is also a Research Associate at the National Bureau of Economic Research since 1998. He was the World Bank Chief Economist for Latin America and the Caribbean from February 1, 2017 to June 30, 2019, while on leave from Johns Hopkins. He was previously a Professor of Economics and Vice-Chair of Undergraduate Studies at UCLA (1996-2005) and Professor of Economics at the University of Maryland (2005-2013). His research work on monetary and fiscal policy in emerging and developing countries has been highly influential in both academic and policy circles. In particular, his work on fiscal procyclicality in emerging markets has been instrumental in generating a copious literature on the subject, which has influenced the adoption of fiscal rules in many emerging markets.
Debt intolerance is a term coined by Carmen Reinhart, Kenneth Rogoff and Miguel Savastano referring to the inability of emerging markets to manage levels of external debt that, under the same circumstances, would be manageable for developed countries, making a direct analogy to lactose-intolerant individuals.
Fear of floating refers to situations where a country prefers a fixed exchange rate to a floating exchange rate regime. This is more relevant in emerging economies, especially when they suffered from financial crisis in last two decades. In foreign exchange markets of the emerging market economies, there is evidence showing that countries who claim they are floating their currency, are actually reluctant to let the nominal exchange rate fluctuate in response to macroeconomic shocks. In the literature, this is first convincingly documented by Calvo and Reinhart with "fear of floating" as the title of one of their papers in 2000. Since then, this widespread phenomenon of reluctance to adjust exchange rates in emerging markets is usually called "fear of floating". Most of the studies on "fear of floating" are closely related to literature on costs and benefits of different exchange rate regimes.
Nicoletta Batini is an Italian economist, notable as a scholar of innovative monetary and fiscal policy practices. During the crisis she pioneered the IMF work exposing the dangers of excessive fiscal austerity and designed ways to consolidate public debt successfully during phases of financial deleveraging. Since 2003 at the International Monetary Fund, she has served as Advisor of the Bank of England’s Monetary Policy Committee between 2000-2003 and was Professor of Economics at the University of Surrey (2007-2012), and Director of the International Economics and Policy office of the Department of the Treasury of Italy’s Ministero dell’Economia e delle Finanze (MEF) between 2013-2015. Batini's fields of expertise include monetary policy, public finance, open economy macroeconomics, labor economics, energy and environmental economics, and economic modeling. She has handled extensive consultancy roles in the public sector in advanced and emerging market countries. She holds a Ph.D. in international finance from the Scuola Superiore S. Anna and a Ph.D. in monetary economics from the University of Oxford.
Enrica Detragiache is the head of the Germany Desk of the International Monetary Fund (IMF), and the assistant director of the IMF's European division. She formerly taught Economics at Johns Hopkins University, and has published over 71 research papers and articles. Her research covers topics such as labour migration, financial crises, development economics, and corporate finance.