WEBVTT NOTE The Mises-Hayek Business Cycle Theory and the Open Economies 1 00:00:00.000 --> 00:00:07.200 So the title of the paper I wanted to discuss is the ABCD Fiat Currencies and Open Economies. 2 00:00:07.200 --> 00:00:13.280 So when I send the title to the organizer, I forget to write fiat currencies. 3 00:00:13.280 --> 00:00:20.760 And that's actually I think the most important part of what I'm trying to say, what I'm trying to change. 4 00:00:20.760 --> 00:00:28.400 So basically to put it in a simple way, what I'm trying to do is take, 5 00:00:28.400 --> 00:00:31.880 Let me say like the Wagner's Challenge. 6 00:00:31.880 --> 00:00:36.040 So in his paper, discarding the chaff, keeping the wheat, 7 00:00:36.040 --> 00:00:41.040 he says, okay, IBCT usually assumes gold standard, 8 00:00:41.360 --> 00:00:43.760 commodity standard, monetary regime. 9 00:00:43.760 --> 00:00:45.720 Today we have fiat currencies, 10 00:00:45.720 --> 00:00:48.400 so what happens if we change this? 11 00:00:48.400 --> 00:00:50.680 Something happens, nothing happens. 12 00:00:50.680 --> 00:00:53.320 So that's what I'm trying to take on. 13 00:00:53.320 --> 00:00:55.720 So go from a canonical version with the gold standard 14 00:00:55.720 --> 00:00:56.880 or something like that, 15 00:00:56.880 --> 00:01:01.400 and move on to see what happens if we assume fiat currencies. 16 00:01:01.400 --> 00:01:04.600 There is no much written on these 17 00:01:04.600 --> 00:01:06.360 and in the context of open economies 18 00:01:06.360 --> 00:01:08.280 or international economies. 19 00:01:08.280 --> 00:01:11.040 Few papers and few chapters appears. 20 00:01:11.040 --> 00:01:13.160 Tyler Cowen, in his book, has a short chapter 21 00:01:13.160 --> 00:01:16.600 on the international effects of business cycles. 22 00:01:16.600 --> 00:01:18.520 There's a paper by Ritchie, 23 00:01:18.520 --> 00:01:19.800 and that's actually an extension 24 00:01:19.800 --> 00:01:23.960 of Garrison's model to international context. 25 00:01:23.960 --> 00:01:26.320 And a few recent paper by Hoffman and Schnabel, 26 00:01:26.320 --> 00:01:27.680 which are very interesting. 27 00:01:27.680 --> 00:01:30.280 So if you like this topic, I recommend you read those. 28 00:01:32.880 --> 00:01:34.360 So if we assume fiat currencies 29 00:01:34.360 --> 00:01:38.200 rather than a commodity-based monetary system, 30 00:01:38.200 --> 00:01:40.440 at least we have to question the first one. 31 00:01:42.720 --> 00:01:44.240 We don't have adverse clearing anymore. 32 00:01:44.240 --> 00:01:45.280 So if we have a gold standard 33 00:01:45.280 --> 00:01:46.520 and we start to issue bank notes, 34 00:01:46.520 --> 00:01:48.720 eventually we start to lose reserves, 35 00:01:48.720 --> 00:01:51.260 so eventually we have to stop with this monetary policy 36 00:01:51.260 --> 00:01:54.720 so the boom becomes a bust, and all the story we know. 37 00:01:54.720 --> 00:01:55.720 We don't have that anymore, 38 00:01:55.720 --> 00:01:56.960 at least in the traditional sense. 39 00:01:56.960 --> 00:02:00.540 So what is going to replace the adverse clearing? 40 00:02:00.540 --> 00:02:02.240 Or I can imagine someone asking 41 00:02:02.240 --> 00:02:03.440 if we don't have adverse clearing 42 00:02:03.440 --> 00:02:05.280 and what matter is the difference between inflation 43 00:02:05.280 --> 00:02:08.720 and expected inflation, why we can't inflate forever? 44 00:02:08.720 --> 00:02:11.000 We are not losing reserves. 45 00:02:11.000 --> 00:02:12.900 So I'm not saying we can't do that, 46 00:02:12.900 --> 00:02:15.940 but I think that someone may ask that question. 47 00:02:15.940 --> 00:02:18.080 So that's something that may be 48 00:02:18.080 --> 00:02:20.420 or may be required to be addressed. 49 00:02:20.420 --> 00:02:22.580 In this paper, I'm not dealing too much with this topic. 50 00:02:22.580 --> 00:02:24.340 I'm basically assuming that central banks 51 00:02:24.340 --> 00:02:25.500 don't want to have inflation. 52 00:02:25.500 --> 00:02:29.900 so inflation will be the trigger, not the lose of reserves. 53 00:02:29.900 --> 00:02:31.540 But still it's a question that may point 54 00:02:31.540 --> 00:02:33.940 to some interesting points. 55 00:02:33.940 --> 00:02:36.900 But if you have fiat currencies and central banks, 56 00:02:36.900 --> 00:02:38.940 then differently to a gold standard, 57 00:02:38.940 --> 00:02:40.500 a commodity standard, monetary regime, 58 00:02:40.500 --> 00:02:42.500 we have more than one currency 59 00:02:42.500 --> 00:02:44.380 and we have more than one central bank. 60 00:02:44.380 --> 00:02:46.060 So what happens when central banks start 61 00:02:46.060 --> 00:02:48.260 to interact with each other? 62 00:02:48.260 --> 00:02:50.460 That may do something. 63 00:02:51.680 --> 00:02:53.580 Also if we have more than one currency, 64 00:02:53.580 --> 00:02:54.820 we have a new price. 65 00:02:54.820 --> 00:02:56.640 we have a foreign exchange. 66 00:02:56.640 --> 00:03:00.940 If we have a new price, then we may have new distortions 67 00:03:00.940 --> 00:03:02.900 coming through the new price. 68 00:03:02.900 --> 00:03:05.880 So how this affects the business cycle theory. 69 00:03:05.880 --> 00:03:08.360 So this is what this paper is about. 70 00:03:08.360 --> 00:03:09.620 I give you the outline. 71 00:03:11.340 --> 00:03:13.140 The paper is divided in two big sections. 72 00:03:13.140 --> 00:03:14.960 The first one is the interaction 73 00:03:14.960 --> 00:03:16.660 between central banks in general. 74 00:03:18.420 --> 00:03:20.420 What one central bank decides to do affects 75 00:03:20.420 --> 00:03:22.720 the policy of the other central bank. 76 00:03:22.720 --> 00:03:25.560 The second section deals more with the effects 77 00:03:25.560 --> 00:03:28.260 that the big economy can have on small economies. 78 00:03:28.260 --> 00:03:31.080 I want to focus more on this topic today. 79 00:03:31.080 --> 00:03:33.440 And then there's a short bullet point 80 00:03:33.440 --> 00:03:36.080 at the end of the paper of where a business cycle 81 00:03:36.080 --> 00:03:38.760 with fiat currencies become more or less severe. 82 00:03:38.760 --> 00:03:41.840 And this has to do with some conclusions 83 00:03:41.840 --> 00:03:44.020 I found in Cohen and Ritchie. 84 00:03:44.920 --> 00:03:46.120 Because there is not much time, 85 00:03:46.120 --> 00:03:47.720 I'll give you the findings early. 86 00:03:47.720 --> 00:04:17.720 So the interaction between central banks, the points that can mislead monetary policy, we don't have adverse clearing anymore, we have a substitution, what central banks do, if the monetary policy gets misleaded, it can be extended in time enough to make business cycle more severe, I fail to react timely, and in this case of small open economies, we don't have only the traditional lengthening of the period 87 00:04:17.720 --> 00:04:20.320 of Production, or more on the aboundness. 88 00:04:20.320 --> 00:04:22.520 We also have effects on tradeable 89 00:04:22.520 --> 00:04:25.320 and non-tradeable industries, and by this I mean industries 90 00:04:25.320 --> 00:04:27.920 that produce goods that can be exported rather 91 00:04:27.920 --> 00:04:32.220 than just be consumed domestically, like housing. 92 00:04:32.220 --> 00:04:35.420 Yes? Okay, so this is the general setup. 93 00:04:35.420 --> 00:04:38.920 I don't want to use the word model here, but the idea is 94 00:04:38.920 --> 00:04:42.120 that we have a center and a periphery formed 95 00:04:42.120 --> 00:04:45.420 with small open economies, for example, the U.S. 96 00:04:45.420 --> 00:04:50.940 in Latin America, or Euro and some Eastern European countries, Japan and Southeast Asia. 97 00:04:50.940 --> 00:04:56.340 So this is the general framework that is going on in this article. 98 00:04:56.340 --> 00:05:05.840 So if we have fiat currencies, the first problem is, as I mentioned before, 99 00:05:05.840 --> 00:05:09.240 we don't have adverse clean, so what do we use as a substitute? 100 00:05:09.240 --> 00:05:15.380 We use inflation, we use unemployment, we use some kind of nominal spending measure, 101 00:05:15.380 --> 00:05:18.460 and productivity norm, what do we use? 102 00:05:18.460 --> 00:05:20.180 There is no clear agreement. 103 00:05:20.180 --> 00:05:23.140 It's not that we know which indicator we want to use 104 00:05:23.140 --> 00:05:26.500 and then we don't agree on what the monetary policy should be. 105 00:05:26.500 --> 00:05:28.220 There doesn't seem to be too much agreement 106 00:05:28.220 --> 00:05:31.500 of what we should be looking at in the first place. 107 00:05:31.500 --> 00:05:36.900 So that's already a problem that can set central banks off track. 108 00:05:36.900 --> 00:05:39.660 This of course in the context of this problem 109 00:05:39.660 --> 00:05:41.820 of monetary nationalism. 110 00:05:41.820 --> 00:05:47.000 and second, different central banks interact with each other 111 00:05:47.000 --> 00:05:49.500 and that has feedback effects. 112 00:05:49.500 --> 00:05:52.160 So let's say that we have the periphery 113 00:05:52.160 --> 00:05:56.000 and the center will take as given, like they make a mistake, 114 00:05:56.000 --> 00:05:59.500 they start to spend monetary policy too much 115 00:05:59.500 --> 00:06:02.720 and the periphery wants to keep foreign exchange rates stable, 116 00:06:02.720 --> 00:06:05.300 not to be facing appreciation because they don't want 117 00:06:05.300 --> 00:06:08.260 to hurt export industries or political reasons 118 00:06:08.260 --> 00:06:11.060 or for any reason they decide to keep foreign exchange rates. 119 00:06:11.060 --> 00:06:16.020 So they absorb the money of the center as reserves, 120 00:06:16.020 --> 00:06:19.940 if that currency is used as international currency 121 00:06:19.940 --> 00:06:21.140 of exchange. 122 00:06:21.140 --> 00:06:23.620 If the center starts to increase consumption, 123 00:06:23.620 --> 00:06:26.420 and that can be done with import of goods, 124 00:06:26.420 --> 00:06:28.260 then inflation can be postponed. 125 00:06:28.260 --> 00:06:32.100 So I think my monetary policy is going fine, but it's not. 126 00:06:32.100 --> 00:06:35.220 And if you have been following what has been discussed 127 00:06:35.220 --> 00:06:37.460 with the financial crisis in 2008, 128 00:06:37.460 --> 00:06:39.500 they should be sound very familiar, right? 129 00:06:39.500 --> 00:06:42.660 Imports Coming from Asia, China, and different countries. 130 00:06:42.660 --> 00:06:47.020 And we're not having high signs of inflation. 131 00:06:47.020 --> 00:06:50.220 Also, we don't see signs of depreciation or depreciation, 132 00:06:50.220 --> 00:06:52.460 so my foreign exchange rate seems to be fine. 133 00:06:53.540 --> 00:06:56.860 So this is a problem of looking at the wrong indicator. 134 00:06:57.900 --> 00:07:01.860 Therefore, I may be spending money for too long 135 00:07:01.860 --> 00:07:05.540 and business cycle can become more severe. 136 00:07:05.540 --> 00:07:10.540 Well, this shouldn't be too controversial. 137 00:07:11.140 --> 00:07:14.300 Eichengreen, Leiham-Futh, Taylor, William White, 138 00:07:14.300 --> 00:07:16.960 quite a lot of economists has point to this problem, 139 00:07:16.960 --> 00:07:21.820 so I don't think this should be very strange. 140 00:07:23.440 --> 00:07:26.500 Now, I want to move to the small open economies, 141 00:07:26.500 --> 00:07:27.940 because I think this can lead to something 142 00:07:27.940 --> 00:07:30.500 more interesting to do. 143 00:07:31.380 --> 00:07:33.380 So, we can have two scenarios, where the periphery 144 00:07:33.380 --> 00:07:35.580 decides to keep the foreign exchange stable, 145 00:07:35.580 --> 00:07:38.700 or what they decide to let the foreign exchange float. 146 00:07:38.700 --> 00:07:40.620 I will just focus on one of them, 147 00:07:40.620 --> 00:07:43.340 when the small open economies decide to keep 148 00:07:43.340 --> 00:07:45.840 the foreign exchange stable, just to illustrate the point, 149 00:07:45.840 --> 00:07:48.500 I will also make a simple scenario. 150 00:07:48.500 --> 00:07:51.780 So the center decides to increase money supply, 151 00:07:51.780 --> 00:07:56.020 imports increase, because I can buy goods 152 00:07:56.020 --> 00:07:57.100 from the rest of the world, 153 00:07:57.100 --> 00:07:59.260 the price of non-tradable goods increase 154 00:07:59.260 --> 00:08:01.600 before the prices of tradable goods, 155 00:08:01.600 --> 00:08:03.720 Housing will be an example. 156 00:08:03.720 --> 00:08:06.240 And resources in the center are relocated 157 00:08:06.240 --> 00:08:10.880 from tradable industries to non-tradable industries. 158 00:08:10.880 --> 00:08:13.000 Tradable goods, I can buy them from outside. 159 00:08:13.000 --> 00:08:15.960 Non-tradable goods, I have to produce them. 160 00:08:15.960 --> 00:08:18.720 The periphery, we have the mirror effect. 161 00:08:18.720 --> 00:08:20.920 Right, if the center starts to import more goods, 162 00:08:20.920 --> 00:08:22.920 then the periphery starts to export goods. 163 00:08:22.920 --> 00:08:25.420 The export dependency to the center increases. 164 00:08:25.420 --> 00:08:28.240 So you can have a relocation of capital goods 165 00:08:28.240 --> 00:08:31.120 from non-tradable to tradable industries. 166 00:08:31.600 --> 00:08:39.600 So this is a scenario I want to use as an example, which means we have two effects going on. 167 00:08:39.600 --> 00:08:45.600 On one side, the traditional lengthening of the period of production, we go to more roundabout industries. 168 00:08:45.600 --> 00:08:48.600 I'm not saying that's not happening, of course that's happening. 169 00:08:48.600 --> 00:08:55.600 But we also have a relocation between tradable and non-tradable industries. 170 00:08:55.600 --> 00:08:59.600 I want to make a small parenthesis, okay, so what? 171 00:08:59.600 --> 00:09:02.960 Right, we have the big set of capital goods, 172 00:09:02.960 --> 00:09:05.960 we make a distinction inside and we say, 173 00:09:05.960 --> 00:09:09.260 okay, we have also movements inside our big pot 174 00:09:09.260 --> 00:09:11.200 of capital goods, like, what's the big deal? 175 00:09:11.200 --> 00:09:14.440 Of course, you are, if you make some other distinction, 176 00:09:14.440 --> 00:09:17.280 we are also going to have some misallocations there. 177 00:09:18.520 --> 00:09:21.920 Okay, fine, the general story doesn't change, 178 00:09:21.920 --> 00:09:23.640 but if we distinguish between tradeable 179 00:09:23.640 --> 00:09:26.800 and non-tradeable goods, then we can apply this 180 00:09:26.800 --> 00:09:29.520 and we can make a comparison to other business cycles 181 00:09:29.520 --> 00:09:31.960 series applies to small open economies. 182 00:09:31.960 --> 00:09:35.840 And that's where I want to go. 183 00:09:35.840 --> 00:09:40.840 So let's see if we can picture this in Hayekian triangles. 184 00:09:42.400 --> 00:09:43.240 These effects. 185 00:09:43.240 --> 00:09:46.880 If there's an audience that can like Hayekian triangles 186 00:09:46.880 --> 00:09:49.320 and understand them, it's probably this one. 187 00:09:50.160 --> 00:09:55.160 So this is a Hayekian triangle, enlarged, right? 188 00:09:55.160 --> 00:10:06.160 So this is the consumption axis, stages of production, this blue area, that will be the traditional triangle we see when we read papers using this diagram. 189 00:10:06.160 --> 00:10:12.160 So this panel is what we usually see. That's the same thing. 190 00:10:12.160 --> 00:10:19.160 Now we are at this line. This line has the share of capital goods assigned to tradable and non-tradable industries. 191 00:10:19.160 --> 00:10:32.160 So we can say this dark gray area, that's capital goods assigned to tradable industries, and the light gray area, that's capital goods assigned to non-tradable industries. 192 00:10:32.160 --> 00:10:38.160 So that's a standard triangle, blue triangle, normal situation, nothing happens. 193 00:10:38.160 --> 00:10:47.160 Then come our friends from the central banks, and they decide to expand monetary policy, and that happens. 194 00:10:47.160 --> 00:10:49.920 So we have to make sense of that. 195 00:10:49.920 --> 00:10:51.800 So let's go step by step. 196 00:10:53.320 --> 00:10:56.560 We have our blue usual triangle. 197 00:10:56.560 --> 00:10:59.240 The red lines is the effects of monetary policy, 198 00:10:59.240 --> 00:11:02.160 so we have the traditional triangle being pulled 199 00:11:02.160 --> 00:11:04.200 on the both sides. 200 00:11:04.200 --> 00:11:06.140 That's still going on. 201 00:11:06.140 --> 00:11:10.600 This red area, that's the extension 202 00:11:10.600 --> 00:11:13.360 of the period of production across the board 203 00:11:13.360 --> 00:11:15.920 for our industries or the whole economy. 204 00:11:15.920 --> 00:11:26.920 And this green area, that's a relocation of capital goods from non-tradable industries to tradable industries, going, if you want, on another dimension or from another point of view. 205 00:11:26.920 --> 00:11:38.920 This area, that is not marked, that will be that capital goods are not only shipped from non-tradable to tradable, but also to lengths, both effects happening together. 206 00:11:38.920 --> 00:11:45.920 So when the boom becomes a bust, we have these two areas that have to correct together, not only one. 207 00:11:45.920 --> 00:11:54.920 Now, this is a graph of the small open economy, what happens in the small economy when the big economy does something. 208 00:11:54.920 --> 00:12:03.920 So we should have the same triangle for the center and another triangle for the periphery for fixed exchange rate and then two other graphs for floating exchange rate. 209 00:12:03.920 --> 00:12:07.520 I'm not going to show you that, you can read the paper, 210 00:12:07.520 --> 00:12:08.880 but I think you get the idea. 211 00:12:10.200 --> 00:12:13.560 So why this is important, or why I think this is important. 212 00:12:15.240 --> 00:12:19.440 So what happens with conventional theory? 213 00:12:19.440 --> 00:12:24.000 Like we have a small open economy, there's a monetary shock, 214 00:12:24.000 --> 00:12:27.720 and conventional wisdom says that depending on the kind 215 00:12:27.720 --> 00:12:31.040 of shock we have, we should follow a floating exchange rate 216 00:12:31.040 --> 00:12:32.640 or a fixed exchange rate. 217 00:12:32.640 --> 00:12:34.760 If we are in front of a monetary shock, 218 00:12:34.760 --> 00:12:37.560 then we want to fix exchange rate, 219 00:12:37.560 --> 00:12:40.000 so the monetary shock does not transmit 220 00:12:40.000 --> 00:12:41.960 real effects to the economy. 221 00:12:41.960 --> 00:12:46.480 If we have a real shock, then we want a floating exchange rate. 222 00:12:46.480 --> 00:12:48.960 Floating exchange rate prices are just fast, 223 00:12:48.960 --> 00:12:52.920 so that can help to adjust relative prices faster. 224 00:12:54.000 --> 00:12:57.000 Now when we go and take the empirical data, 225 00:12:57.000 --> 00:12:59.640 we put them in our regression, the HG models, 226 00:12:59.640 --> 00:13:03.800 and all the stuff that we ensure so much to do. 227 00:13:03.800 --> 00:13:06.960 We sometimes find these effects and sometimes we don't, 228 00:13:06.960 --> 00:13:09.360 which means if you have a monetary shock 229 00:13:09.360 --> 00:13:10.680 and you have two economies, 230 00:13:10.680 --> 00:13:12.720 one with floating exchange rates, 231 00:13:12.720 --> 00:13:14.160 another with fixed exchange rate, 232 00:13:14.160 --> 00:13:17.120 you should see business cycles behave differently 233 00:13:17.120 --> 00:13:19.520 because they are following different exchange rates 234 00:13:19.520 --> 00:13:21.560 in face of a monetary shock. 235 00:13:21.560 --> 00:13:24.380 Sometimes you find that, sometimes you don't. 236 00:13:24.380 --> 00:13:26.760 And that's a problem that Canova finds. 237 00:13:26.760 --> 00:13:28.840 Canova starts to study Latin America 238 00:13:29.640 --> 00:13:33.160 and he says that all countries, 239 00:13:33.160 --> 00:13:35.560 independent of what foreign exchange they have, 240 00:13:35.560 --> 00:13:36.960 they become more or less the same 241 00:13:36.960 --> 00:13:39.520 and his puzzle, he doesn't get an answer 242 00:13:39.520 --> 00:13:41.200 of why that happens. 243 00:13:41.200 --> 00:13:44.980 Well, that happens because of this. 244 00:13:44.980 --> 00:13:46.440 This is happening whether you follow 245 00:13:46.440 --> 00:13:48.080 one foreign exchange rate or not 246 00:13:48.080 --> 00:13:50.220 and if this effect is strong enough, 247 00:13:50.220 --> 00:13:53.560 it can drive your aggregate in the same behavior. 248 00:13:53.560 --> 00:13:54.960 It's not that this is not happening 249 00:13:54.960 --> 00:13:58.620 or the other parts of the theory are not occurring 250 00:13:58.620 --> 00:14:00.740 but you are missing a piece. 251 00:14:00.740 --> 00:14:04.260 So this kind of, if you want conventional approach 252 00:14:04.260 --> 00:14:06.180 or Mandel-Fleming approach, et cetera, 253 00:14:07.140 --> 00:14:09.620 I'm being silent whether that's right or wrong. 254 00:14:09.620 --> 00:14:11.440 I'm saying it's incomplete. 255 00:14:11.440 --> 00:14:13.740 And that incompleteness is not trivial 256 00:14:13.740 --> 00:14:17.740 because what was a puzzle starts to make sense. 257 00:14:19.680 --> 00:14:21.820 So let me show you one more slide. 258 00:14:21.820 --> 00:14:24.220 This is very, very preliminary. 259 00:14:24.220 --> 00:14:27.380 This is something I shall start to look very recently 260 00:14:27.380 --> 00:14:30.740 so I don't want to be too focused on particular numbers 261 00:14:30.740 --> 00:14:32.940 but how this will look like. 262 00:14:32.940 --> 00:14:35.380 So I go to Latin America and I choose two countries, 263 00:14:35.380 --> 00:14:38.500 Colombia and Panama, one with floating exchange rate. 264 00:14:38.500 --> 00:14:40.500 Colombia, Panama is solarized, 265 00:14:40.500 --> 00:14:45.500 so that will be a fixed exchange, the fixed exchange economy. 266 00:14:45.540 --> 00:14:50.060 And I want to look what happens between 2002 and 2007, 267 00:14:50.060 --> 00:14:53.140 between the dot com and the 2008 financial crisis. 268 00:14:53.140 --> 00:14:55.940 Right, if the center is following 269 00:14:55.940 --> 00:14:59.240 and a Sustainable Monetary Policy, when the shock comes, 270 00:14:59.240 --> 00:15:01.860 that shock is not in itself the cause of the crisis, 271 00:15:01.860 --> 00:15:03.680 that's one of the effects. 272 00:15:03.680 --> 00:15:06.240 So I want to know what happened before the shock, 273 00:15:06.240 --> 00:15:08.760 to make sense of what happens after the shock. 274 00:15:10.480 --> 00:15:13.420 So I divide following some kind of common sense, 275 00:15:13.420 --> 00:15:15.740 the industries in Colombia and Panama 276 00:15:15.740 --> 00:15:18.280 between more roundabouts or more capital intensive, 277 00:15:18.280 --> 00:15:20.680 maybe that will be more precise, 278 00:15:20.680 --> 00:15:24.520 and less roundabout for each one of those countries. 279 00:15:24.520 --> 00:15:26.660 So, how did they behave? 280 00:15:26.660 --> 00:15:28.420 Well, this number had actually grown, 281 00:15:28.420 --> 00:15:31.920 that 31 should be almost 50, and this eight, 282 00:15:31.920 --> 00:15:36.240 I did my math wrong, sometimes happens, right? 283 00:15:36.240 --> 00:15:38.680 But the idea is that both economies, 284 00:15:38.680 --> 00:15:40.160 with different exchange rate, 285 00:15:40.160 --> 00:15:42.120 they are having their more capital intensive 286 00:15:42.120 --> 00:15:45.000 or their more roundabouts or however we want to call them, 287 00:15:45.000 --> 00:15:48.680 growing much more faster than the less roundabout 288 00:15:48.680 --> 00:15:50.940 in both cases. 289 00:15:50.940 --> 00:15:54.160 And Canova and that kind of work cannot make sense 290 00:15:54.160 --> 00:15:56.920 of why business cycles behave the same 291 00:15:56.920 --> 00:15:58.860 when you follow different foreign exchange rate 292 00:15:58.860 --> 00:16:01.080 because they are not looking at this. 293 00:16:01.080 --> 00:16:03.600 They're missing capital theory, right? 294 00:16:03.600 --> 00:16:06.120 What Nikolai Foss was talking yesterday. 295 00:16:06.120 --> 00:16:08.360 That's a fundamental piece. 296 00:16:08.360 --> 00:16:11.000 So this is where I think this kind of approach, 297 00:16:11.000 --> 00:16:14.360 take the ABCT, update it to fiat currencies 298 00:16:14.360 --> 00:16:17.040 and then you can maybe say something 299 00:16:17.040 --> 00:16:20.240 to business cycle theories applied in small economies. 300 00:16:20.240 --> 00:16:22.960 Okay, so thank you for your time. 301 00:16:22.960 --> 00:16:24.960 Thank you very much.