Research AreasFinance, Jobs & Macroeconomics
Globalization & Macroeconomics

PERI's research on finance, jobs and macroeconomics looks at financial institutions, markets, macroeconomic activity, and policy, and considers how these affect employment, inequality, economic instability and living standards in the U.S. and globally. Our focus is on advancing policies that will promote financial stability, full employment, and improvements in living standards for working people and the poor, and facilitate the transition to an environmentally sustainable economy.

The Revenue Potential of a Financial Transaction Tax for U.S. Financial Markets

This paper by PERI Co-Director Robert Pollin, Associate Director James Heintz as well as Thomas Herndon, a PERI Research Assistant, estimates the revenue potential of a financial transaction tax (FTT) for U.S. financial markets. It focuses on analyzing the revenue potential of the Inclusive Prosperity Act that was first introduced into Congress in 2012. The authors conclude conservatively that the net revenue potential of this U.S. FTT as being around $300 billion per year, which equals approximately 1.7 percent of current U.S. GDP.  This U.S. FTT should also not produce significant negative effects on productive investment spending by U.S. nonfinancial corporations.

> Read "The Revenue Potential of a Financial Transaction Tax for U.S. Financial Markets"

Dodd-Frank at Five: How Much Has Changed?

July 21, 2015 marked the fifth anniversary of the passage of Dodd-Frank, the main legislative response to the dangerous financial practices that led to the financial crisis of 2007-2008. In this report, Gerald Epstein and Juan Montecino survey the trends of the US financial system prior to and since the passage of Dodd-Frank. They show that the financial system has become more resilient in several ways, but that many trends have not changed—and there are new, worrying trends in financial markets and practices, in particular the expansion of the “shadow banking” system.

> Read the report, "Banking from Financial Crisis to Dodd-Frank: Five Years On, How Much Has Changed?"

Multiple Mandates for Central Banks

In this working paper published by the International Labour Office (ILO), PERI Co-Director Gerald Epstein argues that central banks should take an active role in helping developing countries create jobs, invest in productive activities, and meet the challenges of climate change. "It took the great financial crisis of 2007-2008 to shake up the 'Washington Consensus' and raise significant questions about [a single-minded focus on commodity inflation] as a central banking norm.... It is timely to assess the arguments for broader (or multiple) mandates for central banks, review old approaches and assess new ones for implementing development central banking."

> Read “Development Central Banking: A Review of Issues and Experiences

External Financial Shocks in Developing Economies

One of the most significant results of the global financial crisis and Great Recession of 2007-09, was that, in general, developing countries survived the crisis with less damage than the advanced economies. Why did this occur? Hasan Cömert and Mehmet Selman Çolak argue that a main factor was that the developing countries, in general, experienced relatively moderate financial account shocks, both in terms of magnitude and duration, during the crisis. They discuss the reasons for this, and implications of this result for future economic prospects and policymaking. 

>> Read “Can Financial Stability be Maintained in Developing Countries After the Global Crisis?: The Role of External Financial Shocks”

Gerald Epstein's Distinguished Faculty Lecture

This past March, Professor Gerald A. Epstein, Co-Director of PERI, presented "When Big is Too Big: Do the Financial System's Social Benefits Justify Its Size?"

According to standard economic theory, the financial system encourages productive investment while also helping families and businesses to reduce risk and pursue opportunities that would otherwise be beyond their means. The Great Financial Crisis of 2008, however, brought these assumptions into doubt and raised a key question: just what are the financial sector's contributions to society? Professor Epstein will argue that since 1980 the financial sector has increasingly failed to promote social well-being, and he will propose some corrective restructurings.

At the conclusion of the lecture, Professor Epstein was presented with the Chancellor's Medal, the highest honor bestowed to faculty by the campus.

>>Read more information about the event

>>Watch the lecture in full 

Did Quantitative Easing Lead to Bank Profits?

The rationale for the Federal Reserve’s Large Scale Asset Purchases—the biggest emergency economic stimulus in history, also known as “Quantitative Easing”—was to boost the economy after the 2007-8 financial crisis. Another explanation is that the Fed’s goal was to help its natural constituency: large banks. Authors Juan Antonio Montecino and PERI Co-Director Gerald Epstein examine transactions-level data on Fed purchases during the first phase of QE. They find that purchases of mortgage-backed securities led to significant increases in bank profits, and only mixed evidence that these were associated with increased lending. 

>> Read "Have Large Scale Asset Purchases Increased Bank Profits?"

New Book In the Tradition of Jane D’Arista

September 2014 -- Banking, Monetary Policy and the Political Economy of Financial Regulation: Essays in the Tradition of Jane D’Arista is a new book edited by PERI Co-Director Gerald Epstein, Tom Schlesinger and Matías Vernengo. Most of the essays in the volume were first presented at a May 2008 conference at PERI held in honor of Jane D’Arista. For decades, Jane D’Arista has identified, analyzed, and warned against the forces that had led to the Great Recession, which was unfolding at the time of the conference. Contributors to this volume both examine the causes of the crisis as well as advance new policy perspectives on financial markets and macroeconomics that are capable of enhancing well-being for vast majority of people rather than only the "fortunate few" that currently control the financial system. 

>> Read more about the book, including an excerpt, here

Shadow Banking and Systemic Risk in China

June 2014 -- Systemic risk occurs when many financial institutions fail due to a common shock. The US and Europe faced both liquidity and solvency risk in the recent crisis, but China did not. Since China has not faced a system-wide meltdown, it is not obvious where the weaknesses within China’s shadow banking sector may lie. This paper by Sara Hsu, Jianjun Li, and Ying Xue uses a Markov analysis to find that some systemic risk is presented by trust companies, and that banks absorb most of this risk in the financial system.

>> Read "Shadow Banking and Systemic Risk in China"

Is There a Progressive Way Out of the Eurozone Crisis?

May 2014 -- In this New Labor Forum guest column, PERI Co-Director Gerald Epstein argues that the euro crisis is being used to dismantle labor and social protections integral to post-war reconstruction and development. Austerity measures have resulted in stark economic hardship and unemployment, and have led to disillusionment among European citizens with the political establishment, and with the idea of Europe itself. Epstein explores how to advance a progressive alternative that can end the crisis for the mass of Europeans, while saving the continent from dangerous right-wing political destabilization.

>> Read "The Eurozone Crisis: Shredding the Post-War Bargain"

The Decoupling of Financial Sector Profits from GDP

May 2014 -- This paper provides an explanation for the decoupling between the rate of growth of financial profits and GDP in the 2000s. Drawing on the insights from Keynes, Minsky, and Hilferding, Iren Levina identifies a peculiar type of profit—capital gain-like revenues that take the form of profits from underwriting, mergers and acquisitions, securitization, and trade in financial assets. These capital gain-like revenues are shown to have contributed significantly to the decoupling between the rate of growth of financial profits and GDP. Levina’s paper identifies characteristics of these revenues that explain the patterns around this decoupling of financial profits and GDP.

Will the Volcker Rule Lead to Positive Change?

April 2014 -- PERI Co-Director Gerald Epstein writes in Intereconomics 2014 about the Volcker Rule, which was one major component of the Dodd-Frank financial regulatory laws that followed from the 2007-09 financial crisis.  The detailed features of Volcker Rule took three years to write after the passage in 2010 of Dodd-Frank.  This gave Wall Street a chance to gut the new regulations.  Epstein asks: Has the Volcker rule been so “Swiss-cheesed” that it has too many holes to be of value? Or is there enough substance to make the financial system safer and more socially productive?

How Big is Too Big? Finance's Impact on the Health of the Economy

March 2014 -- “How Big is Too Big? What Should Finance Do and How Much Should It Be Cut Down To Size?”: These are the questions posed at a recent panel at the Eastern Economics Association Conference organized by PERI Co-Director Gerald Epstein. Three presentations from Epstein’s co-authors reported on results from a research project funded by the Institute for New Economic Thinking. The project addresses various aspects of impacts of finance on the health of the economy, in the U.S. and other advanced capitalist countries. The presentations raise serious questions concerning the social efficiency of finance as currently constituted. 

>> Read description of the Eastern Economics Association panel 

Download presentations:
>> Understanding Financial Innovation
>> Intersectoral Financial Flows and Non-Financial Corporate Investment in the USA and Europe
>> Intra-Financial Lending, Credit, and Capital Formation

Download working papers:
>> Long-term trends in Intra-Financial Sector Lending in the US: 1950-2012
>> Intra-Financial Lending, Credit, and Capital Formation
>> Sectoral Net Lending in Six Financial Sectors

The Neglected Role of the Business Cycle in Understanding Finance and Growth

February 2014 -- It is accepted by an influential macroeconomic literature that financial development, most commonly measured as private credit in percent of GDP, leads to higher growth. The “standard approach” to controlling for the business cycle is to average data over non-overlapping five year periods. Simon Sturn and Gerald Epstein show that this approach does not eliminate business cycle fluctuations, and conclude that there is no significant correlation between the most commonly-applied proxy for financial development and growth in the long run. They argue that important contributions to the literature are the outcome of a flawed research design, and may have overstated the long-run impact of finance on growth. 

>>Read "Finance and Growth: The Neglected Role of the Business Cycle"

A Post-Austerity Agenda for the U.S.

February 2014 -- PERI Co-Director Robert Pollin delivered the Robert L. Heilbroner Memorial Lecture at the New School for Social Research. His proposals for a post-austerity agenda include a flexible fiscal policy to promote full employment; taxing both the cash hoards of commercial banks and Wall Street transactions; raising the minimum wage to a living wage standard; and investing heavily in energy efficiency and renewable energy to cut greenhouse gas emissions and control climate change.   

>>Watch “A Post-Austerity Agenda for the U.S.”

How U.S. Labor and Capital Experienced the 2007-2008 Financial Crisis

January 2014 -- Mathieu Dufour and Ozgur Orhangazi examine whether the 2007 – 08 financial crisis in the U.S. hit the working class and poor disproportionately, in a pattern similar to that typically experienced by developing countries after financial crises. They find that while the burden of the crisis did fall disproportionately on labor and low-income segments of society, as typically happens in developing countries, the U.S. government did not experience the kinds of policymaking constraints that typically impose huge burdens on crisis-ridden developing countries. 

>>Read "Capitalism, Crisis and Class: The U.S. Economy after the 2007-2008 Financial Crisis"

Restoring Shared Prosperity and Fighting Austerity

January 2014 -- Restoring Shared Prosperity is a new, freely downloadable book of essays edited by Thomas Palley and Gustav Horn that presents a range of new approaches to building viable alternatives to austerity in both the U.S. and Europe. PERI Co-Directors Gerald Epstein and Robert Pollin are among the 22 contributors to this volume.

>> Download Restoring Shared Prosperity

PERI Economists Named to Foreign Policy Magazine’s 100 Leading Global Thinkers of 2013

December 2013 -- PERI Co-Director Robert Pollin, Economics Department Chair Michael Ash, and Economics graduate student Thomas Herndon were named the the "Challengers" category of Foreign Policy Magazine's 100 Leading Global Thinkers of 2013. This was due to their research identifying a series of serious errors in a highly influential study by Carmen Reinhart and Kenneth Rogoff that had been used as a major justification for austerity policies around the globe. 

>> Read Foreign Policy Magazine's 100 Leading Global Thinkers of 2013

Public Debt, GDP Growth and Austerity

January 2014 -- In this revised paper published in the Cambridge Journal of Economics, Herndon, Ash and Pollin (HAP) replicate Reinhart and Rogoff (RR) and find that selective exclusion of available data, coding errors, and inappropriate weighting of summary statistics lead to serious miscalculations that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies. Over 1946 – 2009, countries with public debt/GDP ratios above 90 percent averaged 2.2 percent real GDP growth, not −0.1 percent, as RR reported. RR’s results for median GDP growth rates for the 1946 – 2009 period, and mean and median GDP growth figures over 1790 – 2009 are all distorted by similar methodological errors. HAP’s overall evidence refutes RR’s claim that public debt/GDP ratios above 90 percent consistently reduce a country’s GDP growth. In a separate supplemental paper, Pollin responds to charges by RR and others regarding HAP’s professional conduct, political biases and related issues as well as the significance of their findings for economic policy. Pollin summarizes the state of the debate in a separate blog for Oxford University Press. 

>> "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff," published Cambridge Journal of Economics version

>> Pollin, "Responses to Charges Concerning the Herndon/Ash/Pollin Replication"

>> Pollin blog, "Why Reinhart and Rogoff are Wrong" 

>> Download original PERI working paper, April 2013: "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo ff"

Revisiting Theories of Long Economic Waves

December 2013 -- After the global financial meltdown in 2008, there has been renewed interest in theories of long economic waves that can explain long periods of expansion ending in recession. Lucas Bernard, Aleksander V. Gervorkyan, Thomas I. Palley, and Willi Semmler explore several long wave theories including Kondratieff’s theory of cycles in production and relative prices; Kuznets; theory of cycles arising from infrastructure investments; Schumpeter’s theory of cycles due to waves of technological innovation; Goodwin’s theory of cyclical growth based on employment and wage share dynamics; Keynes-Kaldor-Kalecki demand and investment-oriented theories of cycles; and Misky’s financial instability hypothesis. 

>> Download "Time Scales and Mechanisms of Economic Cycles: A Review of Theories of Long Waves"

Lessons from the Past for Rebuilding Financial Systems

August 2013 -- The financial crisis has called into question previously dominant neoliberal approach to macroeconomic and financial policy. Unfortunately, these lessons are being learned in an uneven manner – and in some important circles, not at all.

In this article for the Review of Keynesian Economics, Gerald Epstein surveys the recent history of developmental finance and central banking. He finds that central banks and related institutions have often played predominantly developmental roles, and that neoliberal approaches are more the exception than the rule. He proposes that the way out of the crisis is to build on current experiments in developmentally friendly policies, rather than abandoning them at the first opportunity.

>> Download "Developmental Central Banking: Winning the Future by Updating a Page from the Past"

Reassessing Debt-to-GDP Ratios: Critiquing Reinhart and Rogoff

April 2013 -- Thomas Herndon, Michael Ash and Robert Pollin examine Reinhart and Rogoff’s research on the relationship between public debt and GDP growth for advanced economies in the post World War II period. Reinhart and Rogoff argue that the rate of economic growth for these countries has consistently declined precipitously once the level of government debt exceeds 90 percent of the country’s GDP. In recent years, Reinhart and Rogoff’s results have been highly influential as support for austerity policies in both Europe and the United States. Herndon, Ash and Pollin find that a series of data errors and unsupportable statistical techniques led to an inaccurate representation of the actual relationship between public debt levels and GDP growth. They  find that when properly calculated, average GDP growth for advanced economies at public debt-to-GDP ratios over 90 percent is not dramatically different than when debt-to-GDP ratios are lower.  

>> Download "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo ff"

How Large Should the U.S. Financial Sector Really Be?

March 2013 -- In the aftermath of the financial crisis, many observers have concluded that the U.S. financial system has grown to excessive size relative to the economy’s non-financial sectors. Gerald Epstein and James Crotty explore ways to conceptualize the U.S. financial sector’s appropriate size and quality. They then look at the efficiency of the financial sector in financing real economic activity and the social purpose of financial innovation. They conclude from this preliminary research that “the financial sector may need to be only one-half to one-quarter as large as it is currently to serve the existing needs of the real sector.”

>> Download “How Big Is Too Big? On the Social Efficiency of the Financial Sector in the United States”

Theory and Policy for Preventing the Next Financial Crisis

February 2013 -- The crisis that began in 2007-2008 forcefully reminds us that financial instability is endemic to capitalist economies that lack dynamically changing financial regulations to keep the forces of leverage and credit within sustainable bounds. Nonetheless, today’s mainstream economists remain intractably opposed to such measures. In The Handbook of the Political Economy of Financial Crises, edited by Martin Wolfson and Gerald Epstein, an international group of experts describes the theoretical, institutional, and historical factors that can help us understand the forces behind financial crises and the strengths and weaknesses of theoretical perspectives and policy approaches that have tried to control these financial tsunamis.

>> Read more about The Handbook of the Political Economy of Financial Crises

Escaping the Liquidity Trap

June 2012 -- After the onset of the Great Recession, commercial banks in the U.S. began accumulating huge cash reserves at the Federal Reserve — $1.6 trillion by mid-2011. This was a result of the Fed pushing the federal funds rate to near zero in 2008, and holding it there through 2011 and beyond. Over this same period, non-corporate businesses obtained zero net credit. Under such circumstances, conventional central bank operations are greatly weakened as a policy tool. Robert Pollin considers policies for escaping this trap: raising the inflation target, depreciating the currency, targeting long-term interest rates, taxing excess reserves, and expanding federal loan guarantees for smaller businesses.

>> Download "The Great U.S. Liquidity Trap of 2009-11: Are We Stuck Pushing on Strings?"

Taxing Wall Street: How to Design an Effective Transaction Tax

May 2012 -- As we continue to suffer the consequences of the global financial crash, a tax on financial market transactions has been gaining support as a way to bring some measure of control over speculative financial practices. The movement to establish a tax in the U.S. has been energized by the National Nurses Union under the theme “Heal America, Tax Wall Street.” In this "Economic Prospects" column for New Labor Forum, Robert Pollin describes the mechanics of the tax, its international support, and how to set a rate that can have a real impact on excessive speculation and the nation’s economic health.

>> Download "A U.S. Financial Transaction Tax: How Wall Street Can Pay for Its Mess"

How Cutting the Pentagon's Budget Could Boost the Economy

May 2012 -- In this article in The Nation, Robert Pollin and Heidi Garrett-Peltier look at the military's record as a jobs engine, and as a source of technological innovation, and recommend that to achieve both of these objectives optimally, the federal government is best off shifting its resources to other investments.

>> Download "Benefits of a Slimmer Pentagon"

For earlier PERI research on Finance and Macroeconomics, please go to the program archive page.