Financial markets

Puriya Abbassi, Falk Bräuning, Falko Fecht, José-Luis Peydró, 02 April 2015

The Global Crisis and subsequent sovereign debt crisis in the Eurozone severely distressed wholesale funding markets. This column argues that in the Eurozone, interbank funding conditions tightened particularly for cross-border borrowing. Moreover, during the worst moments of the crisis, the same borrower bank could pay different prices (up to 100 basis points) for identical loans during the same day. Non-standard monetary policy measures help mitigate these liquidity disruptions, with stronger effects in countries under distress.

Andrés Fernández, Michael W Klein, Alessandro Rebucci, Martin Schindler, Martín Uribe, 02 April 2015

A renewed interest in capital controls following the Great Recession requires a serious empirical reconsideration of their effectiveness as policy instruments. This column introduces a new dataset that features unprecedented levels of disaggregation between asset categories, and distinguishes transactions between residents and non-residents. The ensuing debate should take note.

Joshua Aizenman, Eduardo Cavallo, Ilan Noy, 01 April 2015

An implication of the ‘precautionary saving’ hypothesis is that in countries faced with more macroeconomic volatility and risk, private saving should be higher. In the observable data, however, there is a negative correlation, particularly in developing countries. This column offers a plausible explanation for the disconnect between the precautionary theory and the empirical evidence,  based on a model with a richer account for the various modes of ‘precautionary’ behaviour by private agents, in cases where institutions are weaker and labour informality is prevalent.

Yuko Kinoshita, Fang Guo, 31 March 2015

Japan and Korea need to encourage female labour market participation to counter acute labour shortages. This column argues that following Nordic countries’ experiences, it would be possible to achieve both high female labour force participation rate and fertility rate. However, this is only possible if supported by appropriate public and private sector policies.

Peter E. Robertson, 30 March 2015

The Soviets matched the US only by spending up to 20% of GDP on the military during the Cold War. This column argues that, in stark contrast to this example, China has the potential to match the US in certain military spheres with similar burden on its economy. Using exchange rates comparisons significantly understates the Chinese military spending. A much more realistic assessment is obtained using PPP terms. If both countries spent the same fraction of their GDP on the military, the relative size of China’s military machine would be more than 90% of the US one.

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