Click here to read a piece by Barry Eichengreen, where he highlights the dangers of analogical reasoning in the area of monetary policy. He suggests that past experiences shape modern central banking practice - the Fed's policy is motivated by a desire to avoid its inaction in the early 1930s and the ECB's policy is motivated by Germany's desire to avoid the hyperinflation of the 1920s. However, these analogies may be the wrong ones for today's problems. To avoid faulty analogical reasoning, Eichengreen suggests having a portfolio of analogies from the past. The bottom line is that economists need to know and understand the past.
Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak and Todd Mitton have written a paper on whether firms connected to Timothy Geithner benefited from these connections. They do so by looking at how stocks of these firms reacted to the announcement that he was a nominee for Treasury Secretary in November 2008. They find that there were large abnormal returns for connected firms. Below is the paper's abstract and the full paper is available here . The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner's confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small ne...