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Economic policy gets the award Nobel


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Diario de Navarra

Antonio Moreno

Professor at School of Economics

Tommaso Trani

Professor at School of Economics

The Nobel Prize at Economics has been awarded to three economists who have contributed to economic analysis and economic policy: Ben Bernanke, Douglas Diamond and Philip Dybvig. The first is an expert on the effect of the credit market on the macroeconomy, on global savings flows and on monetary policy. Douglas Diamond and Philip Dybvig have helped us to better understand various aspects of the financial Economics (asset liquidity, surveillance and evaluation of assets). 

The names of Diamond and Dybvig have remained linked in time since the publication in 1983 of their famous article in the Journal of Political Economy on massive withdrawals of bank deposits. In it they set out a series of conditions under which such financial panics occur. They show that they can arise in multiple financial equilibria, because, in their system of fractional reservation , banks do not have sufficient liquidity to cope with massive withdrawals. One way to avoid them is through effective financial regulation, good policy (e.g., insuring deposits) and risk diversification of credit by banks. 

It was precisely the study of the causes of the Great Depression that was the driving force behind Ben Bernanke's degree program principle. In his 1983 article in the American Economic Review he concluded that monetary policy had amplified the financial crisis of '29 by not providing sufficient liquidity to banks during the 1930s. Thousands of banks were closed, depositors lost their savings, companies were unable to find financing and unemployment rose. Bernanke was particularly concerned about this second effect: the lack of credit for businesses, and as a consequence, problems for workers and consumers. 

In 2008, already at the helm of the reservation Federal, he was able to implement many of the results of his (and Diamond and Dybvig's) research through novel monetary policies that saved the world's Economics from a greater evil. In fact, he had to deal with a novel massive withdrawal of deposits: the withdrawal of funding from one bank in favor of others. The result was again the lack of credit for the private sector. As a consequence, monetary policy adapted to the new scenarios, becoming a key instrument of financial stability and the central bank has become a lender of last resort written request. 

The Nobel Prize at Economics 2022 links the macrofinance channel, so prevalent in the modern Economics , with the role of commercial banks and monetary policy. A channel that will continue to need adjustments to provide financial stability. Some are already underway - notably through intense regulation following the 2008 crisis - and more will follow. We are currently facing some financial instability, but by having the most capitalized banks - as the research of the recent award winners has inspired - we have more guarantees of stability.