“THE PERIPHERY”—LESS AMBITIOUS.

“THE PERIPHERY”—LESS AMBITIOUS. Caballero defines the “Periphery” by a methodological decision not to provide “comprehensive answers—let alone quantitative answers.” Caballero says that financial crises provide an extreme case of an increase in complexity and lack of knowledge. He gives the example that in a financial crisis, banks need to know not just the financial health of their trading partners but also the financial health of the trading partners of their trading partners (think of banks wondering whether their partners were owed money a bankrupt Lehman.) He points out that in the current crisis there was also no history of how the new financial products, less than five years old, would behave in a crisis—nature had not even run one experiment yet. The “Core” can aspire to ambitious long-run insights, but the “Periphery” acknowledges and wrestles with the complexity and uncertainty of the short run.

This entry was posted in Economics. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *