The Global Crisis and its high costs have revived interest in early warning indicators of economic risks. This column presents a new set of indicators to detect vulnerabilities and assess country-specific risks of suffering a crisis. The empirical evidence confirms the usefulness of the vulnerability indicators in warning of severe recessions and crises in OECD countries. But indicators are no silver bullet and should be complemented with other monitoring tools, including expert judgement.
Aida Caldera, Mikkel Hermansen, Oliver Röhn, Saturday, September 19, 2015 - 00:00
Anil Ari, Giancarlo Corsetti, Andria Lysiotou, Monday, August 10, 2015 - 00:00
Cyprus has been striving to get back on its feet after a painful bailout in 2013. This column examines the lessons that could have been drawn from the Cypriot experience by Greece in its recent attempt to seal a bailout deal. Specifically, lengthy negotiations – while tending to mitigate the risk of contagion – offer little benefit for debtor countries, and capital controls, once implemented, cannot be easily undone. While they come too late for Greece, these lessons can be important for countries in need of financial assistance in the future.
Michal Kobielarz, Burak Uras, Sylvester Eijffinger, Thursday, March 12, 2015 - 00:00
Jean-Noël Barrot, Julien Sauvagnat, Thursday, February 26, 2015 - 00:00
Philippe Karam, Ouarda Merrouche, Moez Souissi, Rima Turk, Monday, February 2, 2015 - 00:00
Xavier Vives, Monday, December 22, 2014 - 00:00
Martin Brown, Stefan Trautmann, Razvan Vlahu, Thursday, April 10, 2014 - 00:00
Contagious bank runs are an important source of systemic risk. However, with observational data it is near-impossible to disentangle the contagion of bank runs from other potential causes of correlated deposit withdrawals across banks. This column discusses an experimental investigation of the mechanisms behind contagion. The authors find that panic-based deposit withdrawals can be strongly contagious across banks, but only if depositors know that the banks are economically related.
Paolo Manasse, Luca Zavalloni, Monday, June 25, 2012 - 00:00
If Greece defaults, what about Spain, what about the rest of the Eurozone, and what about the rest of Europe? “Contagion” has become a buzzword in international economics. This column asks whether markets are responding irrationally to the nightmare scenario or finally waking up to reality.
Hans Degryse, Muhammad Ather Elahi, María Fabiana Penas, Wednesday, March 21, 2012 - 00:00
As we are learning time and again, if a big bank goes down it takes a lot of other things down with it. This column looks at the effect of bank fragility and failure on other nearby countries and outlines what can be done to mitigate the cross-border contagion.
Bernard Delbecque, Monday, October 17, 2011 - 00:00
It is widely recognised that without a firewall around illiquid but solvent Eurozone countries, a loss of confidence in the markets could increase interest rates to levels high enough to make any country insolvent. The aim of this column is to propose a concrete plan to build such a firewall and halt the spread of contagion of the debt crisis to Italy and Spain.
Paolo Manasse, Giulio Trigilia, Wednesday, July 6, 2011 - 00:00
Most analysts agree that Greece is insolvent. This column argues that the issue is whether Greece’s troubles are contagious.
Olivier Jeanne, Patrick Bolton, Monday, April 25, 2011 - 00:00
The Eurozone crisis has thrown into relief the dangers of financial contagion. The authors of CEPR DP8358 analyze the causes and consequences of sovereign debt crises in zones with financial integration. They conclude that without fiscal integration, the supply of government debt in these areas reaches an inefficient equilibrium, with safer governments inefficiently issuing too little of their high-quality debt and riskier governments issuing too much.
Harald Hau, Choong Tze Chua, Sandy Lai, Saturday, February 5, 2011 - 00:00
Fear of contagion across asset classes is again stalking European sovereign bond markets. This column discusses how shocks to bank stocks spread to non-financial stocks in 2007 and 2008. It finds that equity fire sales by mutual funds had a surprisingly large and devastating effect on the price of non-financial stocks. Could the sale of bonds trigger a similar reaction?
Barry Eichengreen, Friday, December 3, 2010 - 00:00
Irish interest spreads did not fall and contagion continues. Here one of the world’s leading international economists explains why. Short-sighted, wishful thinking by EU and German leadership designed a package that is not economically feasible in the long run (it would trigger a vicious debt deflation spiral) and it is not politically sustainable in the short run. The Eurozone had better have a Plan B for when the new Irish government rejects the package next year and imposes a haircut on Irish bank bondholders.
Prakash Kannan, Friederike (Fritzi) Koehler-Geib, Thursday, December 3, 2009 - 00:00
The subprime crisis became the global crisis when the 2007 financial shock mutated into a full-blown global economic crisis in September 2008. This column attributes the rapid transmission of financial stress to the surprise of the crisis. Using historical data, it shows that crises with a pronounced surprise element tend to result in more widespread contagion.
Andrew K Rose, Mark M. Spiegel, Saturday, October 3, 2009 - 00:00
The 2008 financial crisis is sometimes characterised as one where financial difficulties in the US spread to the rest of the world. But is there clear evidence of such international contagion? This column reports research indicating that neither financial nor trade linkages to the US help explain the cross-country incidence of the crisis. If anything, countries more exposed to the US seem to have fared better.
Stephan Danninger, Ravi Balakrishnan, Selim Elekdag, Irina Tytell, Monday, April 27, 2009 - 00:00
Financial stress reached unprecedented levels in 2008. This column presents a new IMF financial stress index and puts the current crisis into historical perspective. It also shows that bank-lending linkages appear to be the main driver of the transmission of stress. International financial integration brings both opportunities for growth and risks of contagion.
Helmut Reisen, Saturday, December 6, 2008 - 00:00
The global credit crisis is testing the resilience and sustainability of emerging markets’ policies, this column warns. Even strong performers are not shielded against pure financial contagion, although they may well recover quickly once confidence is restored. In the future, development finance is likely to rely less on private debt.