Macroeconomics and fiscal policy Krugman has done much to revive discussion of the liquidity trap as a topic in economics. He recommended pursuing aggressive fiscal policy and unconventional monetary policy to counter Japan's lost decade in the 1990s, arguing that the country was mired in a keynesian liquidity trap. The debate he started at that time over liquidity traps and what policies best address them continues in the economics literature. 64 Krugman had argued in The return of Depression Economics that Japan was in a liquidity trap in the late 1990s, since the central bank could not drop interest rates any lower to escape economic stagnation. 65 The core of Krugman's policy proposal for addressing Japan's liquidity trap was inflation targeting, which, he argued "most nearly approaches the usual goal of modern stabilization policy, which is to provide adequate demand in a clean, unobtrusive way that does not distort the allocation. 66 This mimeo-draft was soon cited, but was also misread by some as repeating his earlier advice that Japan's best hope was in "turning on the printing presses as recommended by milton Friedman, john makin, and others. Krugman has since drawn parallels between Japan's ' lost decade ' and the late 2000s recession, arguing that expansionary fiscal policy is necessary as the major industrialized economies are mired in a liquidity trap. 70 In response to economists who point out that the japanese economy recovered despite not pursuing his policy prescriptions, Krugman maintains that it was an export-led boom that pulled Japan out of its economic slump in the late-90s, rather than reforms of the financial system.
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Krugman adapted their model for the for foreign exchange market, resulting in a 1979 paper on currency crises in the journal of Money, credit, and Banking, which showed that misaligned fixed exchange rate regimes are unlikely to end smoothly: instead, they end in a sudden speculative. 46 Krugman's paper is considered one of the main contributions to the 'first generation' of currency crisis models, 47 48 and it is his second-most-cited paper (457 citations as of early 2009). 31 In response to the global financial crisis of 2008, krugman proposed, in an informal "mimeo" style of publication, 49 an "international finance multiplier to help explain the unexpected speed with which the global crisis had occurred. He argued that when, "highly leveraged financial institutions hlis, which do a lot of cross-border investment. Lose heavily in one market. They find themselves undercapitalized, and have to sell off assets across the board. This drives down prices, putting pressure on the balance sheets of other hlis, and." Such a rapid contagion had hitherto been considered unlikely because of "decoupling" in a globalized economy. He first announced that he was working on such a model on his blog, on October 5, 2008. 53 Within days of its appearance, it was being discussed on some popular economics-oriented blogs. 54 55 The note was soon being cited in papers (draft and published) by other economists, 56 even though it had not itself been through ordinary peer review processes.
So, geographically where can manufacturing be predicted to develop? Krugman states that manufacturing's geographical range is inherently limited by economies of scale, but also that manufacturing will establish and accrue itself in an area of high demand. Production with that occurs adjacent to demand will result in lower transportation costs, but demand, as a result, will be greater due to concentrated nearby production. These forces act upon one another simultaneously, producing manufacturing and population agglomeration. Population will increase in these areas due to the more highly developed infrastructure and nearby production, therefore lowering the expense of good, while economies of scale provide varied choices of goods and services. These forces will feed into each other until the greater portion of the urban population and manufacturing hubs are concentrated into a relatively insular geographic area. 45 International finance Krugman has also been influential in the field of international finance. As a graduate student, Krugman visited the federal Reserve board, where Stephen Salant and Dale henderson were completing their discussion paper on speculative attacks in the gold market.
37 Nonetheless, trade remains beneficial in general, even between similar countries, because it permits firms to save on costs by producing at a larger, more efficient scale, and because it increases the range of brands available and sharpens the competition between firms. 38 Krugman has usually been supportive of free trade and globalization. 39 40 he has also been critical of industrial policy, which New Trade Theory suggests might offer nations rent-seeking presentation advantages if "strategic industries" can be identified, saying it's not clear that such identification can be done accurately enough to matter. 41 New economic geography It took an interval of eleven years, but ultimately Krugman's work on New Trade Theory (NTT) converged to what is usually called the "new economic geography" (neg which Krugman began to develop in a seminal 1991 paper, "Increasing Returns and Economic. 42 In Krugman's own words, the passage from ntt to neg was "obvious in retrospect; but it certainly took me a while to see. The only good news was that nobody else picked up that 100 bill lying on the sidewalk in the interim." 43 This would become Krugman's most-cited academic paper: by early 2009, it had 857 citations, more than double his second-ranked paper. 31 Krugman called the paper "the love of my life in academic work." 44 The "home market effect" that Krugman discovered in ntt also features in neg, which interprets agglomeration "as the outcome of the interaction of increasing returns, trade costs and factor price differences.". That is, ntt implies that instead of spreading out evenly around the world, production will tend to concentrate in a few countries, regions, or cities, which will become densely populated but will also have higher levels of income. 10 Agglomeration and economies of scale manufacturing is characterized by increasing returns to scale and less restrictive and expansive land qualifications as compared to agricultural uses.
Solid lines denote stable equilibria, dashed lines denote unstable equilibria. Krugman modeled a 'preference for diversity' by assuming a ces utility function like that in a 1977 paper by avinash Dixit and Joseph Stiglitz. 33 34 Many models of international trade now follow Krugman's lead, incorporating economies of scale in production and a preference for diversity in consumption. 35 This way of modeling trade has come to be called New Trade Theory. 31 Krugman's theory also took into account transportation costs, a key feature in producing the " home market effect which would later feature in his work on the new economic geography. The home market effect "states that, ceteris paribus, the country with the larger demand for a good shall, at equilibrium, produce a more than proportionate share of that good and be a net exporter." 31 The home market effect was an unexpected result. 31 When there are economies of scale in production, it is possible that countries may become ' locked into ' disadvantageous patterns of trade. 36 Krugman points out that although globalization has been positive on a whole, since the 1980s the process known as hyper-globalization has at least played a part in rising inequality.
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The nobel Prize committee stated that Krugman's main contribution is his analysis of the effects of economies of scale, combined with the assumption that consumers appreciate diversity, on international trade and on the location homework of economic activity. The importance of spatial issues in economics has been enhanced by Krugman's ability to popularize this complicated theory with the help of easy-to-read books and state-of-the-art syntheses. "Krugman was beyond doubt the key player in 'placing geographical analysis squarely in the economic mainstream'. And in conferring it the central role it now assumes." 31 New trade theory Prior to Krugman's work, trade theory (see david Ricardo and HeckscherOhlin model ) emphasized trade based on the comparative advantage of countries with very different characteristics, such as a country with. However, in the 20th century, an ever-larger share of trade occurred between countries with similar characteristics, which is difficult to explain by comparative advantage.
Krugman's explanation of trade between similar countries was proposed in a 1979 paper in the journal of International Economics, and involves two key assumptions: that consumers prefer a diverse choice of brands, and that production favors economies of scale. 32 Consumers' preference for diversity explains the survival of different versions of cars like volvo and bmw. However, because of economies of scale, it is not profitable to spread the production of Volvos all over the world; instead, it is concentrated in a few factories and therefore in a few countries (or maybe just one). This logic explains how each country may specialize in producing a few brands of any given type of product, instead of specializing in different types of products. Graph illustrating Krugman's 'core-periphery' model. The horizontal axis represents costs of trade, while the vertical axis represents the share of either region in manufacturing.
From 1982 to 1983, Krugman spent a year working at the reagan White house as a staff member of the council of Economic Advisers. He rejoined mit as a full professor in 1984. Krugman has also taught at Stanford, yale, and the london School of Economics. 25 In 2000, Krugman joined Princeton University as Professor of Economics and International Affairs. He is also currently centenary Professor at the london School of Economics, and a member of the Group of Thirty international economic body. 4 he has been a research associate at the national Bureau of Economic Research since 1979.
26 Krugman was President of the eastern Economic Association in 2010. 27 In February 2014, he announced that he would be retiring from Princeton in June 2015 and that he would be joining the faculty at the Graduate center of the city University of New York. 28 paul Krugman has written extensively on international economics, including international trade, economic geography, and international finance. The research Papers in Economics project ranks him among the world's most influential economists. 8 Krugman's International Economics: Theory and Policy, co-authored with maurice Obstfeld, is a standard undergraduate textbook on international economics. 29 he is also co-author, with Robin Wells, of an undergraduate economics text which he says was strongly inspired by the first edition of paul Samuelson 's classic textbook. 30 Krugman also writes on economic topics for the general public, sometimes on international economic topics but also on income distribution and public policy.
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22 Krugman thesis later praised his PhD thesis advisor, rudi dornbusch, as "one of the great economics teachers of all time" and said that he "had the knack of inspiring students to pick up his enthusiasm and technique, but find their own paths". 23 In 1978, Krugman presented a number of ideas to dornbusch, who flagged as interesting the idea of a monopolistically competitive trade model. Encouraged, Krugman worked on it and later wrote, "I knew within a few hours that I had the key to my whole career in hand". 22 In that same year, Krugman wrote " The Theory of Interstellar Trade a tongue-in-cheek essay night on computing interest rates on goods in transit near the speed of light. He says he wrote it to cheer himself up when he was "an oppressed assistant professor". 24 Academic career Krugman giving a lecture at the german National Library in Frankfurt in 2008. Krugman became an assistant professor at Yale University in September 1977. He joined the faculty of mit in 1979.
16 he was born in proposal Albany, new York, and grew up in Merrick, a hamlet in Nassau county. 17 he graduated from John. Kennedy high School in Bellmore. 18 According to Krugman, his interest in economics began with Isaac Asimov 's foundation novels, in which the social scientists of the future use a new science of " psychohistory " to try to save civilization. Since present-day science fell far short of "psychohistory krugman turned to economics as the next best thing. 19 20 Krugman earned his. 21 summa cum laude in economics from Yale University in 1974, and went on to pursue a phD in economics from Massachusetts Institute of Technology (MIT). In 1977, he successfully completed his PhD in three years, with a thesis titled Essays on flexible exchange rates. While at mit, he was part of a small group of mit students sent to work for the central Bank of Portugal for three months in the summer of 1976, during the chaotic aftermath of the carnation revolution.
and books for a more general audience, and has published over 200 scholarly articles in professional journals and edited volumes. 11 he has also written several hundred columns on economic and political issues for The new York times, fortune and Slate. A 2011 survey of economics professors named him their favorite living economist under the age. 12 As a commentator, Krugman has written on a wide range of economic issues including income distribution, taxation, macroeconomics, and international economics. Krugman considers himself a modern liberal, referring to his books, his blog on The new York times, and his 2007 book the conscience of a liberal. 13 His popular commentary has attracted widespread attention and comments, both positive and negative. 14 Contents Early life and education paul Krugman, roger Tsien, martin Chalfie, osamu Shimomura, makoto kobayashi and Toshihide masukawa, nobel Prize laureates 2008, at a press conference at the Swedish Academy of Science in Stockholm. Krugman was born to a jewish family, 15 the son of Anita and david Krugman. In 1922, his paternal grandparents immigrated to the United States from Brest, belarus, at that time a part of Poland.
4, in 2008, Krugman was awarded the. Nobel Memorial Prize in Economic real Sciences for his contributions to, new Trade Theory and, new Economic geography. 5, the Prize committee cited Krugman's work explaining the patterns of international trade and the geographic distribution of economic activity, by examining the effects of economies of scale and of consumer preferences for diverse goods and services. Krugman was previously a professor of economics. Mit, and later at, princeton University. He retired from Princeton in June 2015, and holds the title of professor emeritus there. He also holds the title of Centenary Professor at the. London School of Economics. 7, krugman was President of the, eastern Economic Association in 2010, and is among the most influential economists in the world.
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Type or paste a, dOI name into the text box. Your browser will take you to a web page (URL) associated with that doi name. Send questions or comments. Further documentation is available here. For the surname, see. Paul Robin Krugman ( /krʊɡmən/ ( listen kruug-mən ; 1 2 born February 28, 1953) 3 is an American economist who is currently distinguished apple Professor of Economics at the. Graduate center of the city University of New York, and a columnist for, the new York times.