The last three decades had shown drastic changes in unemployment worldwide. In the US unemployment was low till the early 1970s, it has increased dramatically during the early 1980s, and, more recently, has gone down back almost to the level of the 1960s. This low frequency pendulum is the cradle of a faster moving swing - the business cycle. Business cycles, of course, are not a new phenomenon and not specific to the US. Whether measured by unemployment, employment, output, or by more complex measures, they are present at least throughout the documented economic history of the last century.
This work documents a new set of evidence on cyclical unemployment, employment, and on the cyclicallity of wages, and provides a simple interpretation for these facts. While this work shed new light on the role of education over business cycles the new set of evidence is mainly concerned with the direct effect of parents’ education on the cyclicallity of wages and unemployment within each education group.
An understanding of the role and functions of financial markets is a necessary precursor to understanding the effects of advances in trading technology. Markets serve the function of enabling parties to engage in trade. However this is not the only function of markets. Markets serve a price discovery function: providing and aggregating information across both active and inactive market participants. Financial market stability will be enhanced by changes in trading technology which improve the price discovery function.
A trading technology or a market place enables parties to trade. I will explain below how this is intimately related to the price discovery function. However, it is useful to begin with a brief summary of the more elementary function of bringing trading partners together.
The severity of the recent subprime crisis has taken many economists and nancial market participants by surprise. One of the most remarkable symptoms of the crisis was the observed strain in interbank money markets, showing up in sharply increasing money market rates. The rates for unsecured and secured lending diverged tremendously. Interpreting the spread of these rates (the repo spreads) as risk premia for interbank lending, the crisis appears to have led to a massive decline in the banks' (perceived) creditworthiness.
Interestingly, repo spreads did not only increase, but they also became highly correlated across di erent regions (US, UK and euro area) during the turmoil. This paper investigates whether the observed rise in correlations is due to a contagion e ect among interbank money markets. In fact, it is frequently argued that the problems underlying the recent nancial turmoil originated in the United States and spilled over to other regions worldwide. The role of interbank money markets in this process will be discussed.
